The Federal Board of Revenue (FBR) has announced the decision to collect sales tax from sales and purchases of vehicles and has issued a procedure for calculating sales tax in this regard.
The FBR has issued an SRO 931(I)2020 to amend Sales Tax Rules, 2006, Wednesday.
According to the FBR sources, the rules were introduced to collect sales tax on value addition on trading or sale and purchases of a used vehicle. The trader of the used vehicle is required to pay sales tax on the differential of sale and purchase value of the used vehicle. It is important to note that sales tax on the vehicle is already been collected at both manufacturing or import stage.
There is a restriction of input tax adjustment on input tax on vehicles in terms of section 8(1) of the S.T.A. 1990. Legally, once the entire component of sales tax on higher/maximum value of sales has already been collected at the import or manufacturing stage. Is there any justification for levying sales tax on the differential value on the trading of a used vehicle?
According to the FBR, where a registered person is engaged in the business of purchasing and selling used vehicles from the general public on which sales tax had already been paid at the time of import or manufacturing, the value of supply shall be worked out in accordance with the following formula, namely: A-B.
Where ‘A’ is the consideration in money, including all charges and fees but excluding the amount of sales tax charged, received by the registered person from the buyer of the used vehicle.
‘B’ is the consideration in money, including all charges and fees, paid by the registered person to the seller of the used vehicle. Provided, that the whole amount paid or received against the above-mentioned transactions is made through banking channel as required under Section 73 of the Sales Tax Act.
In case, a vehicle is sold at a price lower than its purchase price, the value determined under this sub-rule shall be deemed to be zero.
No input tax credit shall be allowed to the registered person, which is attributable to any goods or services acquired for the purposes of selling used vehicles, the FBR added.
Federal Board of Revenue (FBR) has issued a clarification on the news appearing in print and electronic media regarding levying of 17 percent Sales tax on the 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.