KARACHI: Honda Atlas Cars (Pakistan) Limited has disclosed tax-related contingencies exceeding Rs17 billion in its Annual Report 2026, highlighting multiple ongoing legal disputes with the Federal Board of Revenue over customs duties, sales tax claims, and concessionary import duties.
The company stated that it is contesting several tax assessments and regulatory changes before various judicial forums and believes it has strong legal grounds in each case. As a result, no provisions have been recorded in its financial statements against the disputed amounts.
One of the largest disputes involves customs duty, sales tax, and income tax demands totaling Rs5.40 billion. The issue relates to imports made between 2011 and 2022, where customs authorities argued that royalty and licence fee payments made to Honda Motor Co., Ltd. should be included in the import value of Completely Knocked Down (CKD) kits and vehicle parts imported by the company.
The Collector of Customs (Appeals) upheld the tax demands, but Honda Atlas has challenged the ruling before the Customs Appellate Tribunal. The company maintains that royalty and licence fee payments are linked to manufacturing operations and technical support rather than imported goods, and therefore should not form part of the customs valuation.
Honda Atlas also disclosed a separate sales tax dispute worth Rs63.6 million relating to input tax credits claimed between July 2012 and June 2014. Tax authorities disallowed the credits on the grounds that they were associated with exempt supplies and therefore not eligible under sales tax laws.
After unsuccessful appeals before the Commissioner Inland Revenue (Appeals) and the Appellate Tribunal Inland Revenue, the company approached the Lahore High Court in 2019. The court granted a stay order against the recovery proceedings, and the case remains pending.
The largest tax exposure identified in the annual report amounts to Rs12.47 billion and is linked to amendments introduced through SRO 2069(I)/2022. The amendments require automobile manufacturers to meet annual export targets in order to continue benefiting from concessionary customs duty rates available under SRO 656 of 2006.
Under the revised policy, Original Equipment Manufacturers (OEMs) must export a specified percentage of their imports to retain preferential duty treatment. Honda Atlas has challenged the amendments before the Lahore High Court, arguing that the original purpose of the concessionary regime was to encourage local vehicle assembly and manufacturing rather than impose export obligations.
The court granted interim relief, directing the Engineering Development Board to continue allowing the company to import goods under concessionary duty rates while the matter remains under adjudication.
Honda Atlas stated that automobile manufacturers are also engaged in discussions with the government to seek a policy solution that would avoid disruption to the industry.
Despite the significant financial exposure, the company said management believes the legal challenges are likely to be resolved in its favor based on legal advice and previous judicial precedents.
The disclosures underscore the growing tax litigation faced by Pakistan’s automobile sector, particularly in areas involving customs valuation, sales tax treatment, import concessions, and evolving regulatory requirements affecting vehicle manufacturers.
