Capital Value Tax (CVT) on vehicles
  Sep 06, 2023      

Capital Value Tax (CVT) on vehicles

Last week, as we informed you, the Federal Board of Revenue (FBR) proposed hiking the Federal Excise Duty (FED) on both locally made and imported motor vehicles. The institution intends to propose the increase by passing the Tax Laws Amendment Ordinance in order to contribute more money to the upcoming "mini-budget."

According to recent media reports, FBR has suggested a new auto tax to raise money. These sources claim that the government intends to levy a new Capital Value Tax (CVT) on vehicles that are both imported and domestically produced. To satisfy the expectations of the International Monetary Fund (IMF), the government hopes to raise Rs. 10 billion through this new tax. It's important to note that an IMF group is presently in Pakistan to negotiate the release of the nation's next tranche.

CVT on Cars 

If we talk about the CVT, it was imposed by the government on both imported and domestically made automobiles in three stages. A new automobile tax was disclosed in the Finance bill 2022. The government reportedly levied 2% CVT on automobiles costing more than Rs. 5 million, according to the article (50 lacs). However, after a month, FBR lowered the tax on automobiles costing more than Rs. 5 million to 1%.

FBR also made the process for evaluating automobiles public. The manufacturer-determined value was used to determine the worth of vehicles made in Pakistan. The value for imported autos was established by customs officials and includes customs fees.

If an automobile is sold at auction, its value is determined by the auction price. In all other circumstances, the total amount paid to buy, modify or upgrade the vehicle was taken into account when determining its ultimate worth. The Finance Bill 2022 included provisions for accounting for automobile depreciation. The value of the motor vehicle in question had to be decreased by 10% annually starting at the conclusion of the fiscal year in which it was purchased.

The tax was collected by the Customs authority when the automobiles were imported. For automobiles made locally, the local manufacturer or assembler is responsible for obtaining tax from the purchaser at the amount outlined in the First Schedule.

Car CVT's change

However, there was another modification made to how CVTs were integrated into automobiles. Following July 2022, CVT was mandated for:

Vehicles with engines larger than 1300cc

EVs with batteries that are more powerful than 50 KWh

The government fulfilled the need of Rs. 5 million but increased the number of vehicles subject to taxation. There are good odds that CVT will be raised, albeit there are no reports on what proportion would be required or which automobile category will be impacted.