The cabinet’s Economic Coordination Committee (ECC) has approved new criteria for implementing a 25% sales tax on locally manufactured/assembled vehicles.
Cabinet’s ECC
The ECC met on Wednesday, chaired by the Caretaker Finance Minister. The committee considered the Federal Board of Revenue’s (FBR) proposal for the “Rationalisation of Criterion of Enhanced Rate of 25% Sales Tax on Locally Manufactured/ Assembled Vehicles.”
25% GST On All Locally Manufactured Vehicles
According to sources, a summary was previously moved on December 20, 2023 (Annex-E), incorporating the Ministry of Industries and Production’s views on the matter and proposing a 25% GST on all locally manufactured vehicles with invoice prices greater than 3.5 million (excluding sales tax).
It was noted that the proposed price benchmark was reduced from Rs. 5 million to Rs. 3.5 million because some vehicles currently subject to 25% sales tax cost less than Rs. 5 million (exclusive of sales tax).
Decision ratified by the Federal
The matter was considered, and the decision, which had been duly ratified by the Federal Cabinet, was placed under further review.
According to sources, the Cabinet Committee for Disposal of Legislative Cases did not agree with the FBR proposal and directed the FBR to submit it to the Federal Cabinet for consideration after a thorough internal assessment.
Tax on SUVs or CUVs
As a result, the matter was reconsidered, and it was proposed that the engine capacity of 1400cc be retained to protect the tax base while maintaining a level playing field.
It was also proposed that for all luxury vehicles (whether SUVs or CUVs), a price benchmark of Rs. 4 million (excluding sales tax) be applied as an additional criterion for levying sales tax at a 25% rate.
As a result, a vehicle with a capacity of less than 1400cc and a price (excluding sales tax) of less than Rs. 4 million will be subject to a standard rate of 18 percent, according to sources.
It is worth noting that all locally manufactured/assembled vehicles with engine displacements less than 850cc will continue to be subject to a 12.5 percent reduction.
Similarly, hybrid electric vehicles (HEVs) would continue to be taxed at the lower rate specified in the Eighth Schedule to the Sales Tax Act of 1990. The proposal has an estimated annual revenue impact of Rs. 4.5 billion.
Finance Division
According to the finance division, the ECC approved the proposal following a thorough discussion. The Finance Division also requested “Approval of Share Subscription Agreement (SSA) of National Credit Guarantee Company Limited (NCGCL)” from the forum.
The ECC approved the proposal to sign an SSA between NCGCL, Karandaaz, and the Government of Pakistan via the Ministry of Finance.
The Ministry of Commerce presented a summary of amendments to “SRO 760(I)/2013-Import and Export of Precious Metal Jewellery and Gemstones Order, 2013” and “Import Policy Order 2022- Serial No. 16 of Part II, Appendix-B”.
The committee agreed to the proposals in principle and directed that a committee consisting of representatives from the Ministry of Commerce, Ministry of Law, FBR, and SECP develop detailed proposals for this export-oriented policy reform aimed at opening up the service sector.
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