The government recently announced the budget for the fiscal year 2018-19. It was announced in the budget that any eligible person whose name doesn’t appear on the Active Taxpayers’ List will not be able to purchase vehicles. The ban will be applicable on both locally manufactured vehicles as well as imported ones.
Furthermore, the non-filers of tax returns will not be able to buy any property worth over Rs 4 million either.
The decision to put a ban on non-filers’ purchase of vehicles will not be welcomed by the auto-sector as it will highly affect their sales. The reason behind this is that major part of Pakistan’s population doesn’t file returns.
The auto sector has already shown its reservations over the government’s decision. Stakeholders say that this will encourage investors to buy cars and sell them on premium to non-filers. One of the industry officials added;
It will jeopardise all our efforts to counter the menace of premium, as the decision will motivate investors to buy cars and sell to non-filers on a hefty premium.
The official advised that government should charge extra tax from non-filers which will increase the revenue. However, the government is already charging additional taxes from non-filers which haven’t proved to be very effective in increasing the tax net.
The auto sales are currently through the roof. The sales saw an increase of 22% – 192,734 units in nine months of 2017-18 – as compared to last year. At this time, when the market is booming, the official adds that it will impede the sector’s growth. Big players like Kia and Renault have vowed to enter the Pakistani market and this new move could potentially damage their entry, the official said.
Another sector could possibly benefit from government’s announcement is the banking sector. An analyst told;
Right now, the only way out I see is if people start filing tax returns. The other way that could work is if you lease the vehicle through a bank. Even then, you will have to become a filer by the time the lease period ends.
The sales and prices of used vehicles might boom as well in case parliament gives the final go-ahead to this decision. Once approved, the new policy will be effective from 1st July 2018.
As per the initial responses, the government seems to stand firmly on its decision. FBR’s Member Inland Revenue-Policy and spokesman Dr Muhammad Iqbal mentioned;
Those on the ATL will be able to buy cars. It will be the responsibility of the companies to see if their customers feature on the list.
Iqbal added that non-filers will surely look for alternatives to avoid filing their returns. He told that one of these could be asking a filer to buy the vehicles on non-filers’ behalf. However, Iqbal alerted;
This is a risk the market will take. If a filer allows the non-filer to buy the vehicle he will have to explain the source of income (in his returns).
Pakistan currently has one of the lowest tax filing numbers in the world. According to statistics, only 1.26 million out of the 200+ million population file their returns. The number makes up only 0.6% of the total population which shows how ineffective authorities have been in collecting taxes.
The new decision will surely affect the sales, however, it might encourage non-filers to file the tax returns and increase the tax base of the country.