Government to Impose New Tax on Cars to Fight “Own Money” Challenge

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Reports have come out that have stated that the federal government has decided to increase the prices of locally-assembled cars by imposing new additional withholding tax (WHT) on them. This move is being made to combat the ‘own money’ challenge. The amount increased will be up to Rs. 200,000 per unit.

As per a published summary by a private media outlet, the Ministry of Industries and Production has claimed that complains about vehicle manufacturers having unnecessarily long delivery times are usual. The system which is exploited for this and results in additional payment is known as “own money” by the buyers.

‘Own money’ is an illegal selling practice seen widely among the various car dealers present all across the country. This practice exploits the buyers, who are not aware of it most of the times. The dealers charge buyers this ‘own money’ by tricking them into thinking that this large sum of money is going to the company itself.

In order to discourage this practice of “own money”, the Ministry of Industries and Production has proposed that this additional Withholding Income Tax may be proposed on persons who buy locally-manufactured cars from OEMs, and subsequently, sell these within just 90 days of delivery of vehicles. According to sources, the proposed taxes are of amounts Rs 50,000, Rs 100,000 and Rs 200,000 on engine capacities of up to 1000 cc, up to 2000cc and above 2000 cc respectively.

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In a recent meeting of the Cabinet, the issue of “own money” being charged on the locally manufactured cars was raised by Prime Minister Imran Khan and other cabinet members. The Cabinet members gave the suggestion that the policy to import cars must be reviewed as the protection of such a policy had allowed the local vehicle assemblers to exploit the consumers.

Hammad Azhar – the Minister for Industries and Production – went on to explain in the meeting that the car industry has had a difficult time earlier, up till just a few months ago, credited to the coronavirus pandemic. The pent-up demand during this time had resulted in resurfacing of the “own-money” phenomenon. He added that this situation would soon normalize as most of the manufactures were ramping up production.

The sources further maintained that the people interested in purchasing EVs (2-3 Wheelers and HCVs) may be facilitated through a policy intervention, which could not be covered in the Electrical Vehicles policy (2-3 Wheelers and HCVs) that the ECC approved in its meeting that was held on June 10, 2020. The waiver of Additional Custom Duty (ACD) and Value Added Tax (VAT) on imports for EV (2-3 Wheelers and Heavy Commercial Vehicles), is proposed to remain till 30 June 2025.

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As implied earlier, Federal government has already approved Electrical Vehicles Policy (2-3 Wheelers and HCVs). However, due to its inherent complexities and long consultative process with existing Original Equipment Manufacturers (OEMs), the Electrical Vehicles Policy (four wheelers) took time to be finalized.

Electrical vehicles technology is still at its early stages and is very expensive compared to its counterpart traditional fuel vehicles. Just like governments throughout the world are trying to make it affordable through different financial and fiscal incentives, which include disbursement of direct financial subsidy, MoI&P has also proposed that different incentives may be provided to promote import, usage and manufacturing of electrical vehicles and its related infrastructure.

The proposals with regard to EV Policy (four wheelers) are now finalized though, despite the difficulties, by the inter-ministerial committee constituted by Federal Cabinet. These proposed fiscal incentives will remain in effect till June 30, 2026.

 

Read also: PM Imran Khan Welcomes Joe Biden’s Stance to Go After Dirty Money

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