In a significant economic move, the Federal Board of Revenue (FBR) in Pakistan has recently implemented a 25% sales tax on specific categories of motor vehicles. This decision, detailed in SRO 370(I)/2024 dated March 8, 2024, amends the earlier SRO 297(I)/2023 dated March 8, 2023, introducing revised sales tax rates.
Traditionally, Pakistan maintains an 18% standard rate of sales tax. However, the new notification outlines a 25% sales tax on particular categories, affecting:
- Locally manufactured or assembled vehicles with an engine capacity of 1400CC and above under PCT Code 87.03.
- Locally manufactured or assembled vehicles with an invoice price (excluding sales tax) exceeding Rs 4 million under PCT 87.03.
- Locally manufactured or assembled double cabin (4X4) pick-up vehicles under PCT 87.04.
While the Economic Coordination Committee (ECC) has approved this increase in the General Sales Tax (GST), concerns have arisen within the automotive industry regarding potential repercussions.
The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has expressed serious reservations about the proposed hike. PAAPAM leaders argue that the previous increase to 25% on 1400 cc cars, combined with other taxation measures and currency devaluation, has already led to a drastic drop in automobile sales, down to 30% of 2021-22 levels.
PAAPAM highlights challenges faced by the automotive industry, including soaring energy prices, a 160% currency devaluation in six years, high financing rates, and over 40% taxation on every car sold. This has contributed to a decline in sales over the past five years.
As discussions unfold with relevant authorities, the automotive industry in Pakistan anticipates potential ramifications, including increased car prices and concerns about employment opportunities, tax collections, and the overall health of the industry. Stay tuned for updates on how these new sales tax rates might shape the future of Pakistan’s automotive landscape.
