17% Sales tax Dismissed for Buyers of Old Cars FBR-clarified

On  Oct,2020 ,the FBR issued rules to regulate the business of used-cars and collect sales tax from sales and purchase of vehicles. The ruled were notified through a statutory regulatory order (SRO 931 (I)/2020). A tax official said the FBR will get 17 percent sales tax on such transactions. If the sale of a used car is made to an unregistered person then a three percent further tax will also be imposed,

Recently ,the amendments is made in above rule for the buyers of old and used vehicles from the sale/auction of government departments /autonomous bodies would not be legally required to pay 17 percent sales tax where sales tax has already been paid at the time of local or import stage.

Federal Board of Revenue (FBR) has issued clarification on the news appearing in print and electronic media regarding levying of 17 percent Sales tax on resale of used and refurbished vehicles. FBR has clarified that the existing law charged sales tax on full sale value which was harsh and excessive. On the request of business community who are engaged in such business and after seeking support of major chambers of commerce of the country, a clause was added in the Finance Act to provide relief and to encourage refurbishing of second hand vehicles. This relief is available to only registered persons in Sales Tax and is restricted to 17% of value addition made by such players. No unregistered person can deduct or demand such sales tax from a buyer. It is further clarified that only rules have been finalized now.

Federal Board of Revenue (FBR) have diminished the controversy of collecting 17 percent sales tax from bidders from auction/sale of old and used cars by the government departments/autonomous bodies. At present, the government departments /autonomous bodies are forcing the purchasers of the old and used cars and other vehicles to pay 17 percent sales tax at the time of auction.

The buyers were forced to deposit 17 percent sales tax on sale/auction of vehicles even in cases where sales tax has already been paid at the time of local or import stage.

Sources said that the issue of chargeability of sales tax on auction of vehicles has been examined keeping in view the clarifications issued by the Board from time to time.

The FBR stated that it is intimated that Board from time to time issued various clarifications vide letters dated August 2, 2006; November 21, 2013; January 7, 2020 and November 13, 2020, wherein, it has been conveyed that sales tax is not payable on old and used vehicles auctioned/sold by the government departments/ autonomous bodies, where tax was paid at the purchase/ import stage.

According to sources referred to the FBR that the said exemption is not applicable to the vehicles which were brought into the country or purchased by the auctioning department without payment of due sales tax, which is still in the field and binding on government departments /autonomous bodies.

However, the clarification vide letter dated November 20, 2020 has been issued in the broader context which implies that on auction of goods including vehicles sales tax is chargeable @17% in terms of section 2(33)( b) of the Sales Tax Act, 1990.

In this regard, Board has clarified that on auction of serviceable old and used vehicles if sales tax has been paid at the time of local or import stage, no sales tax is chargeable on auction of stated vehicles.

FBR clarified that whereas, on auction of unserviceable/condemned old and used vehicles, the same shall attract charge of 17 percent sales tax from the bidders, irrespective of the fact that sales tax has already been paid on such imported or locally purchased vehicles and tax so charged be deposited into the federal government treasury accordingly.