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FTO Orders FBR Not to Register Used Car Dealers as Retailers

Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to issue clarity on field formations regarding the matter of used car dealers. FTO has also told FBR not to include such dealers under the definition of retailers while deciding on a complaint pertaining to Itehad Motors — a used car dealership.

The Commissioner – IR Zone III, RTO-I registered the complaint against a retailer whose area spanned over 1000 square feet. The complainant came to know about it via receipt of the assessment order, according to which, a penalty of Rs. 500,000/- was also imposed.

The complainant said that the dealer does not fall within the definition of a retailer as he provides a service and is registered as such with Sindh Revenue Board (SRB). The dealer files monthly sales tax returns and pays provincial sales tax whenever he receives a commission, the complainant alleged.

He took up the matter with FTO, whereafter, the case was referred to Secretary Revenue Division for comments. The complainant said that the business dealer’s activity was taxable, hence he was required to be registered in terms of Section 3(9A) of the Sales Tax Act, and to integrate itself with FBR, being a TIER -1 in terms of clause “e” of subsection (43A) of section 2.

The complainant highlighted that showrooms provide place only to the general public for the purchase of vehicles of a particular brand, for which they charge commission.

The complainant also underlined that the sales tax, under the SalesTax Act, 1990, was charged and paid on the vehicles at the time of import or on locally purchased ones. Hence, charging sales tax again on the resale of the same product would be unfair.

Likewise, FTO noted that General Sales Tax is charged and paid on vehicles at the manufacturing stage. FBR has to give adjustment of input tax, paid at import or local purchase stage under the sales tax law.

FTO has recommended FBR to direct field formations not to register used car dealerships as retailers and issue clarifications to all field formations in this regard.

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