July 02, 2007	Monday	Jamadi-us-Sani 16, 1428

ISLAMABAD, July 1: The government has reduced the rate of withholding tax on locally purchased vehicles to 2.5 per cent from 5 per cent due to persistent pressure from the automobile industry.

The levy would be applicable from September 1, 2007 instead of the earlier decision of July 1, Chairman CBR Abdullah Yousaf said while talking to reporters here on Sunday.

The government in the budget 2007-08 had announced an upfront levy of five per cent withholding tax on locally purchased vehicles, adjustable if taxpayers filed their income tax returns.

Mr Yousuf admitted that the levy was revised following pressure from the local automobile industry. “This is the industry to which we want to extend maximum protection,” he added.

He said the extension in deadline would facilitate buyers that had already booked cars or were in the pipeline to be cleared before August 31, 2007.

The local car manufactures had warned of increasing the car prices in case the government did not review its decision.

The government had extended maximum protection to the car industry in the last budget by restricting imports of old cars till three year old models instead of five years for overseas Pakistani.

Explaining some measures taken in the post-budget period, the chairman said the sales tax measures taken regarding the iron and steel sector would help CBR in documentation. The special one per cent excise duty would be applied on landed costs of the goods, including imported and locally manufactured goods.

However, he clarified that a special excise duty paid on raw materials used in locally manufactured products would be adjustable against final liability.

When asked why the surcharge duty had been converted into special excise duty, he said that it was in violation of the WTO rules and it might attract criticism during the upcoming trade policy review of Pakistan in Geneva. However, he said that those who paid surcharge on goods cleared before the withdrawal would be refunded.

Mr Yousuf said some government departments purchased goods but did not file their returns resulting in sales tax evasion. He said it had been decided to withhold three per cent sales tax on the total that would encourage filing of returns.

Asked whether the three rates of sales tax would not again create distortions in the value added tax system, he said there was no harm in keeping many rates.

It should be noted that the chairman had earlier abolished the four different sales tax slabs on the pretext that a single standard rate would facilitate businessmen.