2.5 percent withholding tax on car sales may be withdrawn

The government may withdraw 2.5 percent withholding tax on local purchase of cars, currently deferred by the Federal Board of Revenue to enhance their sale, it is learnt. The local assemblers wanted exemption, through amendment in Income Tax Ordinance with the insertion of section 231 as, in their opinion, 2.5 percent withholding tax has been hurting sale of cars.
The committee, tasked to finalise the recommendations, has supported withdrawal of 2.5 percent withholding tax to increase the sale of local vehicles. The OEM''s another demand, of allowing import of Euro-II-compliant auto parts at zero duty from India in the upcoming budget, was deferred due to differences among the stakeholders.
Sources told Business Recorder that in the budget proposals sent to the Federal Board of Revenue (FBR) import of Euro-II-compliant auto parts were not included. Instead, a committee was constituted to evolve consensus among all stakeholders, including OEMs and vendors.
The demand of OEMs, for allowing import of Euro-II compliant engine components, falling in the localised list of SRO 693 (I) 2006 in the next budget at zero percent, was opposed by the vendor industry. To this effect, a meeting of auto industry development plan (AIDP) technical committee was held in the Engineering Development Board (EDB) on May 28, but no decision was taken owing to differences among the stakeholders.
The committee, constituted to examine the issue of import of Euro-II complaint parts, would also rationalise duties on sub-assemblies under SRO 655 (1) 2006 with instructions not to compromise indigenisation while formulating recommendations.
The committee would ensure that there is no rollback to indigenisation as well existing completely-knocked-down (CKD) rates and value of parts to be ascertained prior to taking any decision. When contacted, Zaheeruddin Dar, who heads the committee, told Business Recorder that it seemed unlikely that the proposal would be included in the budget due to time constraints. "It may be included through a notification later on".
"We have started consultation process with all stakeholders but it would take some time to finalise." He said it would then be referred to the AIDC before forwarding to the Ministry. The OEMs would be given duty relaxation for a specific time period with the condition to ensure that these parts are developed at home. About allowing import of these parts at zero rate duty, he said it would depend upon the additional cost being borne by the OEMs for assembling Euro-II environment-friendly engines.