FBR Rejects 18% Sales Tax on Locally Manufactured Cars

The Federal Board of Revenue (FBR) has rejected the Ministry of Industry’s request to levy an 18 percent general sales tax (GST) on locally manufactured cars. The Ministry of Industries had suggested standardizing the sales tax rate at 18 percent for all local assemblers, with an exemption for cars below 1,400cc, reported Express Tribune. The FBR didn’t agree, arguing that such a move would lower the tax rate on vehicles currently subject to a 25 percent sales tax and hurt the tax base. The tax machinery said such an arrangement would go against the $3 billion Stand-By Arrangement with the International Monetary Fund. The FBR also discarded the plan on the basis that it would allow SUVs and other cars that currently pay 25 percent GST to pay just 18 percent tax, which would cause revenue losses and hurt the tax base. The regulator noted that the GST was enhanced from a standard 17 percent rate to 25 percent in March 2023 to address both fiscal and current account issues in the first place. It is pertinent to mention that the IMF wants Pakistan to cancel certain schedules and exemptions related to GST, including the removal of the Fifth Schedule and restricting exemptions under the Sixth Schedule to only residential property transactions. IMF wants all goods to be charged a standard GST rate, except for essential items like food staples, education, and health goods which could be taxed at 10 percent. The lender wants reduced rates under the Eighth Schedule canceled. It wants the government to end compliance-related tax policies such as minimum taxes and surcharges.