Pakistan: FBR Raises Sales Tax on Cars (Engine Capacity & Price Details)

Pakistan’s Federal Board of Revenue (FBR) has introduced a 25% sales tax on locally produced or assembled vehicles, provided the invoice price surpasses Rs4 million. This move is expected to further strain the country’s auto industry, which is already grappling with challenges.

The FBR’s Friday notification confirmed the continuation of the 25% sales tax on domestically produced or assembled vehicles with an engine capacity of 1400cc or more. This decision was sanctioned by the Economic Coordination Committee (ECC) and the federal cabinet during the previous interim government’s tenure. The tax applies to all locally manufactured vehicles priced above Rs4 million, those with an engine capacity exceeding 1400cc, and double cabin vehicles.

Local auto manufacturers have expressed their discontent with this decision, urging the government to reconsider. They argue that the increased sales tax will primarily impact domestic car manufacturers, leaving used car importers unaffected.

The FBR anticipates an annual revenue generation of Rs4 to Rs4.5 billion from these tax measures. Initially, all vehicles with an engine capacity above 1400cc were subject to a 25% GST. However, the FBR has now included a price condition, requiring all vehicles priced over Rs4 million and with an engine capacity above 1400cc to pay a 25% GST.

Previously, vehicles with an engine capacity exceeding 1400cc were levied a 25% GST. Vehicles priced above Rs4 million will now have to pay a 25% GST instead of the previous 18%.

For vehicles with an engine capacity up to 850cc, the GST rate remains fixed at 12.5%. In the last budget, the government imposed a heightened GST rate of 25% on luxury vehicles with an engine capacity above 1400cc. This enhanced GST rate, aimed at curbing luxury vehicle consumption, is a common practice in various countries, with some even imposing higher rates, according to an FBR official.