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ISLAMABAD: To avoid practice of double payment of sales tax on vehicles auction, the Federal Board of Revenue (FBR) has legally clarified that no sales tax is chargeable on auction of serviceable old and used vehicles provided sales tax has already been paid at the time of local or import stage.

Official sources told Business Recorder that the FBR has issued this new clarification following issuance of conflicting letters and self-contradictory clarifications in the past to the field formations.

As a result of conflicting clarifications, the buyers or purchasers (bidders) of the old and used vehicles were forced to pay 17 percent sales tax at the time of auctions done by the government departments/autonomous bodies.

The question was raised whether sales tax is chargeable on a serviceable old and used vehicles at the time of auction where sales tax has already been paid on it at the time of first purchase within Pakistan.

It is learnt that the FBR Sales Tax Policy Wing has clarified the issue to the FBR Sales Tax Operations Wing/FTO, but the same has not been communicated to the FBR's field formations.

The FBR's said clarification is not available with the Collectors of Customs or Chief Commissioners in the field formations for compliance.

According to the FBR, the issue of chargeability of sales tax on auction of vehicles has been examined, keeping in view the clarifications issued by the Board from time to time.

Following are the views and comments on the Board: It is intimated that Board from time to time issued various clarifications vide letters dated August 2, 2006; November 21, 2013; January 7, 2020 and November 13, 2020, wherein, it has been conveyed that sales tax is not payable on old and used vehicles auctioned/sold by the government departments/ autonomous bodies, where tax was paid at the purchase/import stage.

However, the said exemption is not applicable to the vehicles which were brought into the country or purchased by the auctioning department without payment of due sales tax, which is still in the field and binding on government departments/autonomous bodies, the FBR said.

However, the clarification vide letter dated November 20, 2020 has been issued in the broader context which implies that on auction of goods including vehicles sales tax is chargeable @17% in terms of section 2(33)( b) of the Sales Tax Act, 1990.

In this regard, Board is pleased to clarify that on auction of serviceable old and used vehicles if sales tax has been paid at the time of local or import stage, no sales tax is chargeable on auction of stated vehicles.

Whereas, on auction of unserviceable/ condemned old and used vehicles, the same shall attract charge of 17 percent sales tax from the bidders, irrespective of the fact that sales tax has already been paid on such imported or locally purchased vehicles and tax so charged be deposited into the federal government treasury accordingly, the FBR added.

Copyright Business Recorder, 2021

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