FBR Considers Increase in Tax on Registration and Transfer of Motor Vehicles

The Federal Board of Revenue (FBR) is considering changes in slabs of withholding taxes on registration and transfer of motor vehicles in order to increase revenue collection during the next fiscal year of 2020/21, it was learnt on Friday.

Sources said discussions are underway on the proposals of the Regional Tax Office-II Karachi about revision in existing tax slabs. The tax department advised creation of a new rate of withholding tax on purchase of motor vehicle with engine capacity below 850cc.

The sources said the country is facing severe financial crisis due to lockdown related to the novel coronavirus. They said in this scenario the government is not intending to introduce any new tax in the next budget to facilitate trade and industry. Tax authorities are considering all possible means through policy measures and changes in the laws.

At present, the FBR is collecting Rs7,500 as withholding tax on registration of new motor vehicle with engine capacity of up to 850cc. The RTO-II Karachi proposed to exempt withholding tax on vehicles of engine capacity of up to 250cc.

However, the tax office advised creation of slab of Rs3,000 for registration of new motor vehicles with engine capacity between 251cc to 650cc. Similarly, the tax office also proposed changes in slabs of withholding tax rate on transfer of ownership of motor vehicles.

Currently, motor vehicles up to 850cc is exempted from tax at the time of transfer first tax rate is applicable at Rs5,000 on engine capacity between 851cc to 1,000cc.

The RTO-II Karachi said the withholding tax rate should be exempted on transfer of motor vehicle of up to 650cc. The tax rate for first slab should be Rs5,000 for the motor vehicle transfer of engine capacity between 651cc to 1,000cc.

Change in slabs of motor vehicle tax was also proposed. Presently, the motor vehicle tax on engine capacity of up to 1,000cc is Rs800.

The tax office proposed that motor vehicle tax rate should be exempted on vehicle with engine capacity of up to 250cc. Meanwhile, the motor vehicle tax should be Rs800 on engine capacity between 251cc to 1,000cc.

The government is expected to set the revenue collection target of Rs5 to 5.1 trillion for the apex tax authority for the next fiscal year, a staggering 31 percent compared to Rs3.9 trillion – the annual target for the current fiscal year and that was revised down multiple times.

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