FBR Removes Sales Tax on Used Car Auctions

Jawad

31 Jul 2024

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FBR Removes Sales Tax on Used Car Auctions

The Federal Board of Revenue (FBR) has announced the removal of an 18 percent sales tax on the auction of serviceable old and used vehicles. This exemption applies to vehicles where sales tax has already been paid at the time of local purchase or import. This decision is part of FBR's ongoing efforts to streamline tax policies and provide clarity on the matter.

Sales Tax on Unserviceable Vehicles

In contrast, the FBR has stated that sales tax will still be applicable to the auction of unserviceable or condemned vehicles. This tax will be charged regardless of whether sales tax was previously paid on these vehicles during their import or local purchase. The rationale behind this policy is to ensure that all relevant taxes are collected, particularly on vehicles that have not been kept in serviceable condition.

FBR's Clarifications to the Federal Tax Ombudsman

The FBR provided a detailed report to the Federal Tax Ombudsman (FTO), explaining its stance on the chargeability of sales tax during vehicle auctions. The report emphasized that the Board has issued various clarifications over the years, maintaining that no sales tax is payable on serviceable vehicles auctioned by government departments or autonomous bodies, provided the tax was settled during the initial purchase or import.

Specific Exemptions and Obligations

However, the FBR clarified that this exemption does not extend to vehicles auctioned without prior payment of due sales tax. Government departments and autonomous bodies are required to ensure compliance with this tax policy. The Board's letter from November 23, 2020, reiterated that a 17 percent sales tax is applicable on the auction of goods, including vehicles, as per section 2(33)(b) of the Sales Tax Act, 1990.

Final Clarification on Tax Policy

In its final clarification, the FBR emphasized that no sales tax would be charged on the auction of serviceable old and used vehicles if the tax was paid during the local purchase or import stage. Conversely, an 18 percent sales tax will be levied on unserviceable or condemned vehicles, irrespective of prior tax payments. The collected tax must be deposited into the federal government treasury, ensuring proper tax compliance and revenue collection.

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