LAHORE: The Punjab government has made a plan to revise the Motor Vehicle Tax policy to make this tax more progressive and turn it partially into an environmental tax.
This is the part of Revenue Mobilisation Strategy and Plan for fiscal years (FY) 2023/24-2025/26, formulated by the Punjab Finance Department.
As per the document, the primary objective of the Revenue Mobilisation Strategy is to achieve high growth in the own-source tax revenue (OSTR) of Punjab and a higher OSTR-to-GDP ratio thereby increasing the fiscal space to provide additional, and better quality, services to citizens along with ensuring necessary infrastructure investments to support the economic growth of the province.
It observed that collection from this tax as a percentage of provincial GDP has been quite low in recent years and stood at 0.05 percent in FY22; after revising the Motor Vehicle Tax policy, the government intends to take this percentage to 0.12 percent by FY26.
The document highlighted the challenges Punjab faces on this tax. It observed that revising the Motor Vehicle Tax policy has become quite challenging due to unhealthy competition among provinces and the federal government, and for this reason, the potential for this tax remains significantly untapped. It explained that as motor vehicles were moveable assets, it was easier for their owners to register them in jurisdictions where the registration and token taxes were relatively lower. “Unfortunately, the federal and provincial governments have failed to formulate or agree on uniform policies regarding this tax.
The fear of losing future registrations of motor vehicles to other jurisdictions has prevented all governments from increasing the tax rates despite the growing realisation of the need for higher taxation of luxury vehicles, and higher taxes on private motor vehicles in general to address concerns regarding congestion, environmental pollution, and sustainability of investments in road infrastructure needed to support the traffic,” it added.
To address the challenges and subsequently, increase revenue through this tax, the government has decided to revise the Motor Vehicle Tax policy with the objectives of maintaining a regular source of income and retaining the flexibility to alter the Motor Vehicle Tax rates in future.
Under the Revenue Mobilisation Strategy, the government intends to introduce motor vehicle registration system reforms. It would make it obligatory for vehicle owners to register vehicles (locally manufactured) in their name at the time of booking the vehicle as opposed to the current policy of registering vehicles after taking delivery and in the case of imported vehicles, a suitable process for mandatory registration would be devised.
The government believes this measure is likely to help in achieving an important public policy objective of discouraging the hoarding of new vehicles by a few investors and reselling them, without registering them in their names, at a premium. It also foresees higher tax revenue, as all subsequent sales of the vehicle will require payment of the transfer fee by the purchaser.
The document also highlighted the need to bring the motor vehicle taxes, including registration fee, transfer fee and motor vehicle tax (token), in line with the principle of progressive taxation, meaning the average tax rate for wealthier taxpayers should be higher than the average tax rate of less wealthy taxpayers. “As the value of a motor vehicle is a measure of its owner’s wealth, a progressive motor vehicle taxation regime would require: the tax to be charged as a percentage of the value of the motor vehicle and higher tax rates to be charged on motor vehicles whose values are higher,” it added.
Thus, as per the document, all three taxes would be charged as a percentage of the value of the vehicle. However, for the transfer of older vehicles, an appropriate method would be devised; by applying an annual depreciation on the value of vehicles or by applying lower rates of transfer fees on them.
Copyright Business Recorder, 2023
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