As the Punjab government has imposed a one-time tax on imported luxury car exceeding 1300cc, a downfall in the government revenue is anticipated.

The government has incorporated an amendment to the Punjab Finance Act 2016 despite objection by the Punjab Excise and Taxation (E&T) department. The E&T department had informed the government that such tax would ultimately reduce the volume of registration of luxury vehicles and token tax revenue in the province.

The owners of vehicles are likely to buy imported luxury cars in Punjab but get them registered in any other province or Islamabad, the department projected.

This is not for the first time when the government has imposed such tax on vehicles. Earlier in the 1990s, the Shahbaz-led government imposed a luxury tax on imported vehicles, but later it had to withdraw on the court orders. Similarly, in the 2000s, the imposition of income tax on commercial vehicles failed and had to be removed.

The official statistics show that the E&T department had collected 30 percent more revenue in the registration of vehicles above 1300cc in FY 2015-16 as compared to the collection in FY 2014-15. An increase of 77 percent has been reported in the registration of imported vehicles above 1000cc to 1299cc during this period.

According to the estimates, around 70 percent of the total imported vehicles countrywide are used in Punjab.

Under the Finance Act 2016, a one-time tax shall be levied on the imported luxury car registered after June 30, 2016. The tax on imported cars with engine capacity exceeding 1300cc will be Rs.70,000. The tax on vehicles with the engine capacity exceeding 1500cc is Rs.150,000. In the same way, the luxury tax on an imported car with engine capacity exceeding 2000cc and 2500cc will be Rs.200,000 and Rs.300,000 respectively.

luxury car Tax Graph
Tax on luxury cars under the Finance Act 2016

According to the law, this tax is applicable to any motor car that comes under the Provincial Motor Vehicles Ordinance 1965. However, the government has the authority to exempt any class of vehicle from the levy of tax by giving a notification.

The tax will not be imposed on a motor car owned by the federal government or any provincial government.

Meanwhile, in the budget of FY 2016-17, the federal government has decided to decrease the customs duty by 5 percent on the import of 800cc to 1800cc used cars. A reduction in the percentage of the customs duty and sales tax on the parts and equipment for the motorcycle industry is also expected.