The tax is already imposed on the new cars and it will result in double taxation
What does FBR’s 17% sales tax on used cars means? It means that no one can buy or sell a used car without paying the sales tax. Moreover, the imposing of sales tax amounting to 17% means the cars market will also face further price increase. And it will also have impact on the new cars. The prices of new cars already saw an exorbitant increase in the last two years.
The move is likely to create an imbalance in the market, which is very volatile currently. This will also create a huge challenge for the common man, the taxation regime and the judicial system.
We must point that usually the transactions of selling cars is through cash payment method in Pakistan. The imposition of banking channel transaction will definitely bring a lot of cash in banking channel and formal economy. However, there might be strong reluctance from the general public.
This will result in informal contracts between parties. It means that there might be upcoming issues for the judiciary. And a number of crisis coming up with litigation involving non-registration of cars on ones own name by parties.
The key challenge is paying 17% sales tax on every transaction. A number of businessmen and car dealerships rely on the profits from car sales. These profits are sometimes meagre i.e. only around 2-3% of the car value. Through this tax, the government is going to create a bigger problem for itself, rather than more tax.
The question arises: Isn’t government closing down the car dealership business through imposition of this new tax?