It kept the advance income tax on registration and purchase of new cars unchanged for the new fiscal year 2015-16, according to an explanatory circular that the Federal Board of Revenue (FBR) issued to provincial and federal excise and taxation departments on Monday.

The federal government reduced the advance income tax rates after phenomenally increasing it in the last fiscal year, which discouraged car owners from getting their vehicles transferred, raising security concerns.

The new rates are expected to cause a revenue loss of Rs500 million in the new fiscal year. However, while continuing its policy of increasing cost of doing business for non-compliant persons, the FBR increased taxes on contractors, suppliers, brokerage commissions and on account of annual token fees, which will yield it additional Rs23 billion revenue.

This amount is in addition to Rs35 billion that the government has estimated on account of withholding tax on banking transactions by non-filers.

The taxes on transfer on ownership of vehicles have been reduced on the demand of the provincial governments, said Shahid Hussain Assad, Member Inland Revenue Policy of the FBR. Earlier, rates on the transfer of vehicle of ownership were equal to those imposed on the registration of a new vehicle.

The government has cut the advance income tax on transfer of ownership by 75% for those who file income tax returns and in the range of 33% to 50% for non-filers. However, out of a population of 180 million, only 880,000 persons have filed income tax returns.

The categories

On the transfer of a 850cc car, an owner who files income tax returns will not pay any tax, unlike the past when he was paying Rs10,000 if the ownership is changed within five years. For non-filer, the rate has also been reduced to Rs5,000.

On 851-1,000cc, a taxpayer will pay Rs5,000 and will enjoy 75% reduction in rate. The non-taxpayer will pay Rs15,000, seeing 40% reduction in tax liability. On 1,001-1,300cc, the transfer rate has been set at Rs7,500 for taxpayers and Rs25,000 for non-taxpayers – a relief of 75% for filer and 37% for non-filer.

On 1,301-1,600cc, the taxpayer will now pay Rs12,500 as against earlier rate of Rs50,000 and the one who does not file his income tax return will pay Rs65,000 as against previous rate of Rs100,000. On 1,601-1,800cc, the taxpayer will pay Rs18,750 as against the earlier rate of Rs75,000 and non-compliant person will pay Rs100,000 against Rs150,000.

On 1,801cc-2,000cc the rate will be 25,000 as against Rs100,000 for a taxpayer and Rs135,000 will be new rate for a non-filer as against old rate of Rs200,000. On 2,001-2,500cc, taxpayers will be charged Rs37,500 as against Rs150,000 and non-taxpayers will be charged Rs200,000 as against the old rate of Rs300,000.

Similarly, on 2,501-3,000cc the rate for a compliant person is Rs50,000 as against old rate of Rs200,000 and for non-compliant person the new rate is Rs270,000 against Rs400,000.

On transfer of vehicles falling in category of over 3,000cc the rate for a compliant person is Rs62,500 against old rate of Rs250,000 and for non-compliant person it is Rs300,000 against Rs450,000.

Token tax

The government has reduced the token tax for filers in the range of 16% to 20% but increased the annual levy for non-filers up to 25%, offsetting any negative impact on the revenues. Token tax is the amount the excise department charges annually from owners of vehicles. On up to 1,000cc cars, the rate for filers has been reduced to Rs800 but increased to Rs1200 for non-filer.

On 1,001-1,199cc cars, the new rate for filer is Rs1,500 and for non-filer Rs4,000. On 1,200-1,299cc, the filer will pay Rs1,750 and non-filer Rs5,000. On 1,300-1,499cc, the filer rate is Rs2,500 and non-filer is Rs7,500. On 1,500-1,599cc, the new rate for filer is Rs3,750 and for non-filer Rs12,000. On 1,600-1,999cc category, the new rate for filer is Rs4,500 and for non-filer Rs15,000. On 2,000cc and above new tax rate is Rs10,000 and Rs30,000 for filer and non-filer, respectively.