Goods/passenger transport vehicles: RRMC recommends one-time/ transactional advance tax

ISLAMABAD: The Reforms & Revenue Mobilization Commission (RRMC) has recommended a one-time/transactional advance tax at the time of first registration/purchase/transfer of goods/passenger transport vehicles in the budget (2023-24) for documentation of transporters.

In this regard, the proposal of the RRMC is under consideration of the Federal Board of Revenue (FBR) for incorporation in the Finance Bill 2023.

According to the report of the RRMC, a one-time/transactional advance tax collection under Section 231B (at the time of first registration/purchase from manufacturer/transfer) should also be made applicable on goods/passenger transport vehicles.

Under the existing provisions of the Ordinance relating to the transport sector:

(I); The Transport sector is subject to a minimum tax regime at the rate of 3% of the gross turnover, in cases of transport services provided to a withholding agent.

(II); Tax at 3.5% of the gross amount received is levied for rendering or providing of carriage services by transport contractors. For an oil tanker contractor, the tax rate of 2.5% applies.

(III); Tax collections under section 231B (purchase/first registration/transfer) and 234 (annually) of the Ordinance.

(IV); It has further been observed that tax under section 231B and CVT (applicable at the time of first-time registration/purchase from manufacturer etc) is presently not being collected from motor vehicle used for public transportation and carriage of goods, due to the exceptions provided in sub section (7) of Section 231B.

The annual tax collection from such vehicles (under Section 234) appears not to be commensurating with the potential of tax revenue from the transport sector.

The RRMC has recommended that the imported vehicles remain subject to the prevailing provision of the Income Tax Ordinance. Secondly, a one-time/ transactional advance tax collection under section 231B (at the time of first registration/purchase from manufacturer/transfer) should also be made applicable on goods/passenger transport vehicle.

Thirdly, the rates of advance tax collection under section 231B/234 should be based on the value of vehicles in a progressive manner instead of engine capacity/laden weight or seating capacity etc. Such collection should be made at significantly higher rates for persons not appearing in active taxpayers list for the last three years.

In this regard, the value of motor vehicles announced by the manufacturer should be considered. The rates stated at “Non-ATL” may also be applied for leased vehicles. For those engaged in goods/passenger transport business, the tax collected from a company may be adjustable, whereas for others, the same should constitute Minimum Tax that can be adjusted against their tax liability of next 2 years, but would not be refundable.

Moreover, the value of motor vehicles shall be reduced by 10% each year from the date of first registration (in case of tax collected on transfer of vehicle).

The RRMC further recommended that the mechanism for calculation of the abovementioned advance tax be modified and fixed as a percentage of value of vehicles instead of engine capacity, the tax rate thereon may start from 5 percent. Such tax should be treated as minimum tax for those engaged in goods and passenger transport vehicles.

However, such advance tax collection should not be made where a person obtains exemption certificate from the Commissioner that his income is exempt from tax or that he has discharged advance tax liability under section 147 or whose entire income is subject to final tax regime or minimum tax regime under any provisions of the Income Tax Ordinance other than this section.

The rate of income tax for a lump sum payment needs to be based on the value of vehicles in a progressive manner, instead of engine capacity. The rationale for the proposed recommendations is that the advance tax collection should be made applicable on transporters to estimate the activity of the transporter and rope them into the tax net. It would also be instrumental in the rationalization of the rate of the Advance tax collection and documentation of the sector/alternate means of collection of tax from the unregistered transporters, the RRMC recommendation added.

Copyright Business Recorder, 2023