To increase the taxation network and increase the indirect tax revenue Federal Board of revenue (FBR) imposed sales tax on purchase and sale of used cars. According to FBR Issued SRO (SRO 931 (I) 2020) Sales tax 17% will charge on value of supply where registered person engaged in purchase and sale of used vehicle from general public on which sales tax already paid at the time of manufacture or import of vehicle, according to FBR additional tax 3% will apply if unregistered trader buy used car.
Federal board of revenue also give formula in said SRO to calculate the value of supply at which sale tax will apply.
Value of Supply = A-B
A: “it is the consideration in money, including all charges, fees and not include sales tax amount charged and received by registered person from the purchaser of used car or vehicle”
B: “it is the consideration in money, include all charges, fees, paid by the registered person (Buyer) to the seller of the used vehicle or car”
It is added transaction amount of buying and selling made through banking channel which is the requirement of section 73 of Act.
Value of Supply for sale tax purpose will be Zero if vehicle is sold at price lower than its purchase price.
This new taxation will apply on those who engage in the business of Buying and selling of used cars and not on individuals who buy and sell cars for their personal use.
Source said that the purpose of this new taxation implication is to bring car dealers in taxation network.