The Federal Board of Revenue (FBR) has abolished 18 percent sales tax on auction of serviceable old and used vehicles where sales tax has already been paid at the time of local or import stage.
However, sales tax would be charged on auction of unserviceable/ condemned old and used vehicles from the bidders, irrespective of the fact that sales tax has already been paid on such imported or locally purchased vehicles.
The FBR has submitted a report to the Federal Tax Ombudsman (FTO) explaining the chargeability of sales tax on auction of vehicles.
According to the FBR’s response to the FTO, 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.
Following are the views/ comments of the Board to the Federal Tax Ombudsman (FTO):
It is intimated that Board from time to time issued various clarifications vide letters of even number dated August 21, 2006, November 21, 2013, January 7, 2020, 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.
However, the said exemption is not applicable to vehicles which were brought into the country or purchased by the auctioning department without payment of due sales tax, which is still in field and binding on government departments / autonomous bodies.
However, the clarification vide letter dated November 23, 2020, has been issued in the broader context which implies that on auction of goods including vehicles, sales tax is chargeable @17 percent in terms of section 2(33)(b) of the Sales Tax Act, 1990.
In this regard, the Board is 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.
Whereas, on auction of unserviceable/ condemned old and used vehicles, the same shall attract charge of 18 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, FBR added.