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Thursday, July 18, 2024

Government Imposes 25% Sales Tax on Cars Over Rs4 Million

The Federal Board of Revenue imposes a 25% sales tax on domestically manufactured cars exceeding Rs4 million, impacting the auto industry and consumer affordability.

The Federal Board of Revenue (FBR) has introduced a significant change in taxation policies, imposing a 25% sales tax on domestically manufactured or assembled cars with an invoice price exceeding Rs4 million. This decision, affecting the auto industry, aims to generate additional tax revenue for the government.

According to a notification issued by the FBR, the 25% sales tax will continue to apply to locally manufactured or assembled vehicles with an engine capacity of 1400cc and above. This measure, previously approved by the Economic Coordination Committee (ECC) and the federal cabinet, targets vehicles considered luxury or high-end in the domestic market.

Auto manufacturers in Pakistan have expressed concern over the increased sales tax, arguing that it would primarily impact domestic car makers rather than importers of used cars. The FBR estimates an annual revenue collection of Rs4 to Rs4.5 billion through these taxation measures, signaling a significant financial boost for the government.

Impact on Auto Industry and Consumers

The decision by the FBR to impose a 25% sales tax on cars exceeding Rs4 million has sparked debate within the auto industry and among consumers. Previously, vehicles above 1400cc engine capacity were subject to a 25% GST, but now, the inclusion of the price threshold adds an additional financial burden on luxury car buyers.

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While the government justifies this move as a means to generate revenue and curb the consumption of luxury vehicles, critics argue that it disproportionately affects local manufacturers and may not effectively target the intended market segment. The enhanced GST rate, applicable to vehicles above 1400cc, aligns with similar taxation measures implemented in other countries to regulate luxury vehicle sales.

Consumer Reaction and Future Outlook

Consumers and industry stakeholders are closely monitoring the implications of the increased sales tax on the auto market. With locally assembled or manufactured cars becoming more expensive, there are concerns about affordability and accessibility for consumers. The government’s decision to levy a higher sales tax reflects its broader fiscal policies aimed at revenue generation and economic stability.

Moving forward, stakeholders anticipate further discussions and potential adjustments to taxation policies to address concerns raised by the auto industry and consumer groups. The impact of these changes on market dynamics, consumer behavior, and industry competitiveness will shape the future trajectory of the automotive sector in Pakistan.