ISLAMABAD: The government agreed with auto part vendors to consider sales tax on car assemblers as input instead of value-addition, paving the way for withdrawal of 2 percent additional sales tax being charged from vendors.
The consensus was reached between Finance Minister Ishaq Dar and representatives of Pakistan Association of Automotive Parts Accessories Manufacturers (Paapam) during a meeting held here.
On the occasion, Ishaq Dar agreed that the imposition of extra 2 percent tax on sales of auto parts to automobile manufacturers by auto parts manufacturers constitute a hardship for the industry and had resulted in a surge in prices of vehicles in local market,” said an official handout issued by the Finance Ministry.
Paapam Chairman Usman Malik stated during the meeting that the additional 2pc tax on items sold in retail markets was leading to an increase in vehicle cost. Dar agreed with the assertion that sales made by auto parts manufacturers to automobile manufacturers were not to be treated as retail sales and it was not the intention of the Federal Board of Revenue (FBR) to subject these sales to extra tax.
Dar directed FBR Chairman Tariq Bajwa to institute a case for removing the anomaly in the taxation system.
Meanwhile, FBR Chairman Bajwa maintained that the government was not withdrawing the additional tax but merely interpreting the law that would help treat the auto parts supplies as inputs instead of value-addition.
The association also proposed the federal government to levy 5% tax on the transfer of vehicle within six months of new purchases, a move aimed at discouraging hoarding and curtail the dealers’ practice of earning money by creating an artificial shortage.
Bajwa said the government may consider the proposal at an appropriate time.
Meanwhile, the association expressed concerns over the government’s decision to completely normalise trade ties with India and sought protection against opening of auto sector to Indian firms.
Dar directed officials of the Ministry of Industries and Engineering Development Board (EDB) to hold a meeting with the stakeholders of the automobile industry to resolve issues.
The Finance Minister also directed officials of the Ministry of Commerce to hold a meeting with the automobile industry representatives and present a report within one month on issues related to the Ministry. He assured Paapam that the recommendations would be considered in the next financial year 2014-15.
On the occasion, Malik also gave a detailed presentation to Ishaq Dar on the current status of the Pakistan automobile industry and its future potential. He said that there were 13 vehicles per 1,000 persons in Pakistan, while in Indonesia and Brazil the numbers 79 and 259 per 1,000 persons respectively.
