The Federal Board of Revenue (FBR) has announced the abolition of the 18 percent sales tax on the auction of serviceable old and used vehicles, provided that the sales tax was already paid at the time of their local purchase or importation.
However, the FBR clarified that sales tax will still be charged on the auction of unserviceable or condemned old and used vehicles, regardless of whether sales tax had been previously paid on their importation or local purchase.
This decision was outlined in a report submitted by the FBR to the Federal Tax Ombudsman (FTO), detailing the chargeability of sales tax on vehicle auctions.
According to the FBR’s response, the issue of sales tax applicability on vehicle auctions was examined based on various clarifications issued by the Board over the years. The Board has communicated its stance through several letters, dated August 21, 2006, November 21, 2013, January 7, 2020, and November 13, 2020.
The clarifications indicated that sales tax is not payable on old and used vehicles auctioned or sold by government departments or autonomous bodies, provided the tax was paid at the purchase or import stage.
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However, the exemption does not apply to vehicles brought into the country or purchased by auctioning departments without the payment of due sales tax. This rule remains binding on government departments and autonomous bodies.
A broader clarification issued on November 23, 2020, stated that a 17 percent sales tax is chargeable on the auction of goods, including vehicles, as per section 2(33)(b) of the Sales Tax Act, 1990.
The FBR further clarified that for serviceable old and used vehicles, if sales tax has been paid at the local or import stage, no sales tax will be charged during their auction. Conversely, for unserviceable or condemned old and used vehicles, an 18 percent sales tax will be levied on the bidders, irrespective of any previous tax payments on these vehicles. The collected tax will be deposited into the federal government treasury accordingly.
