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FBR Imposes 25% Sales Tax on High-End Vehicles Exceeding Rs4 Million

The recent decision by the Federal Board of Revenue (FBR) to impose a 25% sales tax on domestically manufactured or assembled cars exceeding an invoice price of Rs4 million has sparked concerns within the already struggling auto industry.

According to a notification issued by the FBR on Friday, the 25% sales tax will remain applicable to locally manufactured or assembled vehicles with engine capacities of 1400cc and above.

The imposition of this tax stems from approvals granted by the Economic Coordination Committee (ECC) and the federal cabinet during the tenure of the former caretaker government. Under these approvals, a 25% general sales tax (GST) was sanctioned for all vehicles manufactured locally with prices exceeding Rs4 million or possessing engine capacities of 1400cc and above, including double cabin vehicles.

Auto manufacturers in Pakistan have expressed dismay over the decision, arguing that it unfairly targets domestic car makers while leaving importers of used cars unaffected.

The FBR anticipates annual tax collection ranging from Rs4 to Rs4.5 billion through these measures.

Initially, the ECC approved an FBR summary imposing a 25% GST on all vehicles above 1400cc. However, the FBR added an additional condition, mandating the same tax rate for vehicles with prices exceeding Rs4 million.

Previously, vehicles above 1400cc engine capacity were subject to a 25% GST. With the recent amendment, vehicles priced over Rs4 million now fall under the 25% GST bracket instead of the previous 18%.

On the other hand, vehicles with engine capacities up to 850cc will be subject to a GST rate of 12.5%.

The government’s move to impose an enhanced GST rate of 25% on luxury vehicles in the last budget, specifically targeting those with engine capacities above 1400cc, aims to deter the purchase of such vehicles.

According to an FBR official, the application of enhanced GST rates on luxury vehicles is a common practice globally, with some countries implementing even higher rates to discourage luxury consumption.

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