ECC Approves New Criteria For Sales Tax on Locally Manufactured Vehicles

The Economic Coordination Committee (ECC) of the cabinet has approved new criteria for implementing a 25 percent Sales Tax on locally manufactured/ assembled vehicles. The meeting of ECC was held under the chair of the Caretaker Finance Minister on Wednesday. The committee considered the proposal of the Federal Board of Revenue (FBR) regarding the “Rationalization of Criterion of Enhanced Rate of 25 percent Sales Tax on Locally Manufactured/ Assembled Vehicles”. Sources said a summary was earlier moved on 20 December 2023 (Annex-E) incorporating views of the Ministry of Industries and Production on the matter and proposing 25 percent GST for all locally manufactured vehicles with invoice price exceeding 3.5 million (excluding sales tax). It was pointed out that the proposed price benchmark was reduced from Rs. 5 million to 3.5 million as some of the vehicles currently liable to 25 percent sales tax had price less than Rs. 5 million (exclusive of sales tax). The matter was considered and its decision duly ratified by the Federal Cabinet was placed for further review. Sources revealed that the Cabinet Committee for Disposal of Legislative Cases did not agree with FBR proposal and directed FBR to submit the matter to the Federal Cabinet for its consideration after making a thorough internal assessment of the proposal. Accordingly, the matter was reconsidered and it was proposed that the condition of engine capacity of 1400cc may be retained to safeguard the tax base, however, to provide a level playing field. to all luxury vehicles (whether or not SUVs/CUVs), it was further proposed that a price benchmark of Rs. 4 million (excluding sales tax) may be applied as an additional criterion for levy of sales tax at an enhanced rate of 25 percent. Resultantly, a vehicle below 1400cc and having a price (excluding sales tax) below Rs. 4 million will attract a standard rate of 18 percent, sources added. It is pertinent to mention that all locally manufactured/assembled vehicles below 850cc would remain liable to a reduced rate of 12.5 percent. Similarly, hybrid electric vehicles (HEVs) would also retain a reduced rate as provided under the Eighth Schedule to the Sales Tax Act, of 1990. The estimated annual revenue impact of the proposal is Rs. 4.5 billion. According to the finance division, the ECC approved the proposal after a detailed discussion. The Finance Division also sought “Approval of Share Subscription Agreement (SSA) of National Credit Guarantee Company Limited (NCGCL)” from the forum. The ECC approved the proposal of signing of SSA between NCGCL, Karandaaz, and the Government of Pakistan through the Ministry of Finance. The Ministry of Commerce presented a summary regarding amendments in “SRO 760(I)/2013-Import and Export of Precious Metal Jewellery and Gemstones Order, 2013” and “Import Policy Order 2022- Serial No. 16 of Part II, Appendix-B”. The committee agreed to the proposals in principle and directed that a committee composed of representatives of the Ministry of Commerce, Ministry of Law, FBR and SECP may formulate detailed proposals for this export-oriented policy reform targeting the opening up of the service sector. The ECC also gave approval of the summary of the Intelligence Bureau for “Provision of Additional Funds of Rs.125 Million during the Current Financial Year” to meet the increasing requirements of the Bureau vis-a-vis operations against terrorists and anti-state elements. The summary of Finance Division regarding “Approval of Technical Supplementary Grant for Provision of Rupee Cover for Remaining Funds amounting to Rs. 7,621,756,096/- of 1st Tranche of Credit Lines of US $85 million obtained from the World Bank” was approved by ECC.