The Federal Board of Revenue (FBR) has announced a significant policy shift, imposing a 25% sales tax on locally manufactured or assembled vehicles with an invoice price exceeding Rs4 million.
The move, as outlined in the FBR notification released last Friday, specifically targeted vehicles boasting an engine capacity of 1400cc and above.
This decision comes on the heels of approvals granted by the Economic Coordination Committee (ECC) and the federal cabinet during the tenure of the former caretaker government.
The green light was given to impose a 25% General Sales Tax (GST) on all domestically manufactured vehicles priced above Rs4 million or those with an engine capacity surpassing 1400cc, including double-cabin models.
While the ECC initially approved a summary submitted by the FBR, suggesting a blanket 25% GST on all vehicles above 1400cc, the FBR introduced an additional criterion. According to the revised conditions, only vehicles with both an engine capacity exceeding 1400cc and a price tag above Rs4 million would be subject to the heightened 25% GST.
Previously, vehicles with an engine capacity exceeding 1400cc were already subject to a 25% GST. However, the recent adjustment includes a pricing element, requiring vehicles priced above Rs4 million to now pay the elevated 25% GST, up from the previous 18%. Conversely, vehicles with engine capacities up to 850cc will continue to face a GST rate of 12.5%.
Government officials estimate that these taxation measures will contribute significantly to the national exchequer, with the FBR projecting an annual collection ranging from Rs4 to Rs4.5 billion.
This move to enhance the GST rate on luxury vehicles aligns with international practices, where various countries implement higher taxes to deter the purchase of high-end automobiles. FBR officials note that such measures are aimed at curbing the consumption of luxury vehicles, emphasizing that elevated GST rates are not uncommon globally.
