KARACHI: The Sindh government, after initial resistance at the outset of this fiscal year, started collection of withholding tax (WHT) at higher rates on registration and transfer of vehicles from Feb 2, 2015.

However, government and auto dealer sources fear the province will suffer huge revenue losses as the increased WHT rates will discourage motorists from paying road tax and transferring vehicles in their name.

The Federal Board of Revenue imposed the WHT under section 231(b) of the Finance Bill 2014-15, payable at the time of registration and under section 234 which requires motorists to pay withholding tax along with road tax.

Motorists have been divided into filers and non­-filers of income tax having different WHT rates on registration, transfers and road tax payment.

Under the new laws, filers applying for motor registration will have to pay a minimum of Rs10,000 and a maximum Rs250,000 depending on engine capacity of the vehicle while the non-filers will pay a minimum of Rs10,000 and a maximum of Rs450,000 on the same account.

The ordinance further provides that the owners of vehicles will be required to pay Rs450,000 WHT on every transfer up to five years against the government fee of just Rs1,200.

Under section 234 of the income tax ordinance, motorists would be required to pay Rs24,000 WHT on payment of annual road tax. The department fears that motorists would be reluctant to pay road tax to avoid payment of WHT.

The amount is in excess of minimum Rs1,500 and maximum of Rs5,000 charged by the Excise and Taxation Department as road tax.

It is further feared that with high rates of WHT, buyers of second-hand vehicles would avoid getting vehicles transferred in their name due to payment of Rs450,000 as WHT and would prefer to operate vehicles on an open letter.

This will create problems for the law enforcing agencies as it would be difficult to trace the owner of a vehicle involved in a crime, sources added.

The Sindh government, anticipating that the high rates of WHT will dent its revenue from motor registration and transfer, objected strongly to the FBR move and filed a petition with the Council of Common Interests (CCI).

The Sindh government also accused the FBR of unilaterally slapping WHT on motor registration without consulting the former although under the law it is incumbent on the tax enforcing agency to consult the withholding agent.

Meanwhile, data issued by the Excise and taxation department indicates that the registration of new vehicles declined by 25 per cent, vehicle transfer cases fell by 10pc and road tax payment by 12pc due to the enhanced WHT rates during the period from Feb 2 to Feb 18, 2015.

All Pakistan Motor Dealers Association chairman H M Shahzad said that dealers contribute Rs250bn annually to the Sindh government on account of motor registration and transfers. The amount is likely to come down to Rs500 million due to the enhanced WHT rates.

Similarly, the number of vehicles registered daily with the motor vehicle registration wing of the excise and taxation department will be reduced from the present 500 to 100 vehicles only.

He said that the number of vehicles presented by motor dealers daily for transfer is 1,000 which would come down to merely 200 to 250 due to the FBR move.

Published in Dawn March 1st , 2015

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