FBR to slap sales tax on used-cars trade

KARACHI: The Federal Board of Revenue (FBR) on Wednesday announced a decision to collect sales tax from trading of used-cars, unveiling valuation mechanism for the taxation.

The FBR issued rules to regulate the business of used-cars and collect sales tax from sales and purchase of vehicles. The ruled were notified through a statutory regulatory order (SRO 931 (I)/2020). A tax official said the FBR will get 17 percent sales tax on such transactions. If the sale of a used car is made to an unregistered person then a three percent further tax will also be imposed, the official added.

The official at the Regional Tax Office, Karachi said if a used-car is sold at a price higher than the price of the first sale. The differential amount between sale and purchase would increase and the formula would keep this for valuation.

Under the new valuation formula, A is money including charges and fees but excluding the amount of sales tax charged, received by the registered person from the buyer of the used vehicles and B is money including all charges and fees, paid by the registered person to the seller of the used vehicles.

FBR sources said a large number of car dealers are engaged in the business of sale/purchase of used vehicles but they are neither registered with the tax authorities nor paying sales tax on the transactions. Under the Finance Act, 2020, an amendment was made into the Sales Tax Act 1990.

“In case of registered person who is engaged in purchasing used vehicles from general public on which sales tax had already been paid at the time of import or manufacturing, and which paid at the time of import or manufacturing, and which are, later on, sold in the open market after making certain value addition, value of supply will be difference between sale and purchase price of the said vehicles on the basis of the valuation method prescribed by the FBR,” read the law. The official further said introduction of the rules related to used vehicles aim at compelling the car dealers to register with the tax authorities. The payment for sale/purchase has also been made mandatory through banking channels to identify seller/buyer, said the official.