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FBR mulls withholding tax on construction, agri vehicles

Business

May 17, 2020

KARACHI: The Federal Board of Revenue (FBR) is likely to expand the scope of withholding tax to cover vehicles used in agriculture and construction sectors in a bid to broaden tax base across the informal economy, sources said on Saturday.

Tax managers proposed the FBR to impose withholding income tax on motor vehicles used for agriculture and construction sectors. The sources said Regional Tax Office (RTO)-II Karachi recommended revising of the definition of motor vehicles in the Finance Bill 2020 to bring all the motor vehicles defined by the provincial excise department under the ambit of Income Tax Ordinance, 2001 to collect withholding tax.

Presently, motor vehicles, including car, jeep, van, sports, utility vehicles, pickup, trucks for private use, caravan automobile, limousine, wagon and any other automobile used for private purpose are subject to withholding tax at the time of registration.

The RTO-II Karachi in its budget proposals for fiscal year 2020/21 proposed inclusion of motor vehicles, including those used for construction and agriculture purposes for the collection of withholding income tax. The tax office proposed amendment into Income Tax Ordinance, 2001 for collection of withholding income tax.

“Motor vehicle includes car, jeep, van, sports utility vehicle, pickup trucks for private use, caravan automobile , limousine , wagon , any other automobile, and any mechanically-propelled vehicle adapted for use upon roads whether the powers of propulsion in transmitted thereto from an external or internal source,” a budget proposal document said.

“It also includes a chassis to which a body has not been attached, a tractor and a trailer, a combined harvester, a rig, a fork lifter a road roller, construction and earth moving machinery such as a wheel loader, a crane, an excavator, a grader, a dozer and a pipe layer, a road making and road/sewerage cleaning plant and any motor vehicle as defined under Provincial Motor Vehicles Ordinance 1965 and rules there under and any other law.” Source said tax authorities are facing challenges to mobilise revenue without taxing the taxed in the time of unprecedented economic contraction due to two-month long lockdown.

The sources at the RTO-II said the agriculture sector is exempted from income tax and due to ambiguity in the definition the vehicles used by the construction sector escape the levy of withholding tax.

The sources further said the withholding tax on the motor vehicle is adjustable against the income tax liability of an individual. They said the proposed amendment would help in broadening the tax base as a large number of taxpayers in agriculture and construction sectors are operating in informal economy.

The sources said recommendations have been submitted to the Federal Board of Revenue for collection of withholding tax at the time of transfer of registration of all kinds of motor vehicles.