The Federal Board of Revenue (FBR) has issued a circular to explain changes made to advance tax on motor vehicles through Finance Act, 2022. The circular, Income Tax Circular No. 15 of 2022/2023, provides detailed information on the amendments brought to the Income Tax Ordinance, 2001.
The FBR has clarified that the provision of section 231B of Income Tax Ordinance, 2001, which was previously limited to private motor vehicles, has now been expanded. The word ‘private’ has been omitted from the heading and elsewhere in the section, thereby enhancing the scope of withholding tax.
In addition, an inclusive definition of motor vehicle has been provided in the substituted sub-section (7) of section 231B, with exclusions such as motor vehicles used for public transportation, carriage of goods, agriculture machinery, rickshaws, motorcycle rickshaws, and any other motor vehicle having an engine capacity of up to 200cc. This means that the provision of section 231B will now apply to all makes and models of motor vehicles, irrespective of whether they are used for private or commercial purposes by the end user.
The FBR has also increased the withholding tax amount required to be collected at the time of purchase or registration of motor vehicles with an engine capacity of 1601cc and above. In cases of electric vehicles, where the engine capacity of a vehicle is not available and the value of the vehicle is PKR 5 million or more, the tax amount collected will be 3% of the import value, as increased by customs duty, sales tax, and federal excise duty in case of imported vehicles or the invoice value in case of locally manufactured or assembled vehicles.
The rates of tax required to be collected at the time of transfer of registration or ownership of motor vehicles have been provided in clause (2) in the Table in Division VII of Part IV of the First Schedule of the Ordinance. A new proviso has been inserted, whereby a vehicle in which the engine capacity is not applicable (electric vehicles) and the value of the vehicle is PKR 5 million or more, a tax amount of PKR 20,000 will be collected at the time of transfer of registration or ownership of such a vehicle.
It is important to note that if a person does not appear in the active taxpayer list, the tax collectible under this section will increase by 200%. The necessary change has been incorporated in rule 1 of Tenth Schedule of the Ordinance.
In conclusion, the amendments made to advance tax on motor vehicles through Finance Act, 2022, have widened the scope of withholding tax and increased the withholding tax amount for certain categories of motor vehicles. It is essential for taxpayers to comply with these changes to avoid any legal issues or penalties.