Local purchase of cars: FBR may continue to defer 2.5 percent withholding tax

The Federal Board of Revenue (FBR) may continue to defer 2.5 percent withholding tax on the local purchase of cars after April 20. Sources told Business Recorder on Saturday that a proposal was under consideration to extend the date for exemption of 2.5 percent withholding tax on the local purchase of cars.
The deferment of 2.5 percent withholding tax is applicable till April 20. In case the government agrees, the date would be further extended through amendment in Income Tax Ordinance 2001. Previously, the board had amended Second Schedule of the Income Tax Ordinance, 2001 through an SRO.153 (I)/2008. Through this amendment, no tax was collected under section 231B of the Ordinance 2001 during February 21-April 20, 2008 and remained applicable to booking of a motorcar or delivered during the said period.
The FBR provided relief to the general public by withdrawing the levy. The car manufacturers complained that due to withholding tax, the sale of cars had come down in 2007-2008. They demanded of the FBR to extend the exemption till the announcement of next budget so that the actual impact of the relief could be properly analysed by the FBR Direct Taxes Wing.
In the last budget, a new section 231B was inserted in Ordinance 2001, envisaging that every manufacturer or its authorised dealer of cars is obliged to collect advance tax at the rate of 2.5 percent of the value of car at the time of sale, irrespective of the date of booking or advance payment made by the purchaser.