The National Assembly of Pakistan has approved the budget for the fiscal year 2023-24, which includes a provision to impose up to 10 percent advance tax on new motor vehicles.

The budget, which was passed on Sunday June 25, 2023, revised the tax rates for registration of new motor vehicles by provincial excise and taxation department and manufacturers of motor vehicles. The new rates will be effective from July 01, 2023.

According to the Finance Bill, 2023, the advance income tax on new motor vehicles will vary depending on the engine capacity and the value of the vehicle. The tax will range from Rs10,000 for vehicles with engine capacity up to 850cc to 10 percent of the value for vehicles with engine capacity above 3000cc.

The value of the vehicle will be determined by the import value assessed by the customs authorities or the invoice value inclusive of all duties and taxes for locally manufactured or assembled vehicles. For vehicles where engine capacity is not applicable and the value is Rs5 million or more, the tax rate will be 3 percent of the value.

The government said that the tax measure is aimed at generating revenue and discouraging the import and purchase of luxury vehicles in the country. However, some critics have argued that the tax will increase the cost of transportation and affect the automobile industry adversely.