ISLAMABAD: The government on Wednesday decided to impose up to Rs200,000 tax on sale of locally manufactured vehicles within 90 days of delivery from manufacturer to discourage ‘on-money’ and removed sales tax on locally manufactured phones worth over $200 and 4pc withholding tax on local mobile manufacturers.

The decisions were taken at meeting of the Economic Coordination Committee (ECC) of the Cabinet presided over by Minister for Finance and Revenue Dr Abdul Hafeez Shaikh.

The Ministry of Industries and Production reported to the ECC that unnecessary long delivery time for vehicles by the manufacturers was a usual complaint. “The system is exploited which results in additional payment known as ‘on-money’ by the buyers” wrote Additional Secretary Industries Hamid Ateeq.

In order to discourage the practice of on-money, the ministry proposed that additional withholding income tax (AWHT) should be imposed on persons who buy locally manufactured cars from the local manufacturers and subsequently sell it within 90 days of delivery.

Heavy tax on rapid resale of new cars to discourage ‘on money’

The meeting approved additional AWHT at the rate of Rs50,000 for vehicles with engine capacity of up to 1,000cc, Rs100,000 between 1000cc and 2000cc and Rs200,000 on 2000cc and above. This tax will remain applicable until June 30, 2021.

The ECC also approved Mobile Device Manufacturing and Electric Vehicles Policy (2-3 wheelers and heavy commercial vehicles (HCVs) presented by the Ministry of Industries and Production.

After due deliberation, “the forum approved removal of withholding tax of 4pc on manufacturing to retailers of locally manufactured phones to incentivise the sector,” said an official statement. Moreover, removal of sales tax on locally manufactured phones was also approved in principle and modalities would be worked out in consultation with the Finance Division, the statement said.

The ECC was requested that individuals interested in electrical vehicles (EVs) in two and three-wheeler category and HCVs should be facilitated through policy intervention which could not be covered in the EV Policy (2-3 wheelers and HCVs) approved by ECC on June 10, 2020. Therefore, the waiver of additional custom duty (ACD) and value-added tax (VAT) on imports for EV (2-3 wheelers and HCVs), in CBU condition was proposed till June 30, 2025.

However, the policy (four wheelers) took time to be finalised due to its inherent complexities and long consultative process with existing original equipment manufacturers (OEMs).

Therefore, such facilitation need to be extended in Pakistan for which an inter-ministerial committee constituted by the federal cabinet had now finalised the EV policy (four wheelers). The proposed fiscal incentives shall remain in force till June 30, 2026.

Under the policy, EV specific parts in completely knocked down (CKD) would attract only 1pc custom duty and no ACD or regulatory duty (RD) or value added tax, while completely built units (CBUs) import would be made at 25pc custom duty and zero ACD or RD. On top, the 4-wheelers EV also envisage duty free import of plant and machinery, import of 100 CBUs per company at the rate of 50pc of prevailing custom duties while import of EV charges would attract 1pc custom duty only.

Also, the import of CKD in small cars and sports utility vehicles with 50 kWh battery or below and light commercial vehicles with 150 kWh battery would be exempt from sales tax, value added tax on imports but pay 1pc sales tax on sales. The EVs would be exempt from federal excise duty.

In addition, toll tax of National Highway Authority would be half for EV and a special window would be created at the SBP for car financing at reduced rate. The provincial governments would be requested to exempt EV from registration fee and annual renewal.

Published in Dawn, December 17th, 2020