One of the proposals in the Finance Bill 2018 (per A.F Ferguson’s memorandum) is a restriction in the acquisition of certain assets, including property and vehicles for non-filers of income tax returns. In essence, those who are not in the active taxpayer’s list of the FBR will not be able to book, register or purchase a new locally assembled or imported vehicle. If approved, this measure would shake things up within the automotive industry, unlike any other measure taken up in the past, but perhaps not in the way desired by the government.
The provision intends to discourage the parking of untaxed money in vehicles and immovable assets; and it comes at a time when more people are gearing up to buy their own vehicles, and more players are entering in the market to meet this burgeoning demand.
While this may or may not be a constitutionally acceptable step, it is an extension of the government’s policy to penalize non-filers —in 2014, the government first introduced a difference in withholding tax for transactions made by filers and non-filers which was contentious to begin with—this move could easily turn sour.
If it works, demand will drop dramatically in the short-run since there aren’t enough tax filers in the country to begin with. Most likely though, it would further exacerbate the existence of “own-money” market in the automotive industry. Many cars in the market are brought in bulk by investors who then sell these cars on premiums to customers who do not want to wait for 6-8 months and are willing to pay extra to get their vehicles immediately. With the restriction on non-filers to directly purchase a vehicle, this informal market will see a boon.
If companies double down on these investors, and restrict bulk purchases like Indus Motors has done, this move will automatically hurt demand and subsequently the sales for local manufacturers; not to mention hurt the exchequer as well. While earlier, non-filer transactions were earning the government extra revenue, the new move would in fact, reduce revenue streams.
What the government perhaps fails to realize is that since it has been unsuccessful in curbing the largely informal industry of used cars, prospective car owners will be flocking to dealers to buy used cars which unlike new cars will not suffer from this restriction. Used car dealers are not worried. Perhaps, if this limitation extends to the transfer of vehicle as well, used cars and investor bought cars will also come under the ambit.
Until such a time, this new restriction will only hurt the government and illegal means and loopholes will be discovered by car buyers who will go the extra mile to avoid filing tax returns. Nice try, finance team, but better luck next time.
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