The Federal Board of Revenue (FBR) has turned down the Ministry of Industry’s request to levy an 18 percent general sales tax (GST) on locally built vehicles.
18% General Sales Tax
The Ministry of Industries proposed a standard sales tax rate of 18 percent for all domestic assemblers, with an exemption for automobiles under 1,400cc.
Tax Rate on Vehicles
The FBR disagreed, noting that such a shift would reduce the tax rate on vehicles currently subject to a 25% sales tax, harming the revenue base.
$3 billion Stand-By Arrangement
The tax authorities stated that such an arrangement would violate the $3 billion Stand-By Arrangement with the International Monetary Fund.
The FBR also rejected the measure on the grounds that it would allow SUVs and other vehicles that currently pay 25% GST to pay only 18% tax, resulting in revenue losses and harming the tax base.
The agency highlighted that the GST rate was increased from 17 percent to 25 percent in March 2023 to address both fiscal and current account difficulties in the first place.
It is worth noting that the IMF wants Pakistan to remove certain GST schedules and exemptions, such as the Fifth Schedule and the Sixth Schedule, which restricts exemptions to just residential property transactions.
The IMF wants all goods to be charged a single GST rate, with the exception of vital items such as food staples, education, and health products, which might be taxed at 10%.
The lender wishes to terminate the reduced rates under the Eighth Schedule. It urges the government to eliminate compliance-related tax measures including minimum taxes and surcharges.
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