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FBR’s new sales tax policy jeopardizes the motorcycle industry

The new FBR policy introduced for sales of motorcycle to Distributors, Dealers & Retailershaving Sales Tax Registration Number has made the business very complicated and impossible. Even the taxation lawyers’ fraternity is finding itself confused. In this regard a latest move was made by renowned High Court Advocate Lajpat Khatri yesterday through his letter addressed to chairman Federal Board of Revenue seeking clarifications.

He said the sales of motorcycles to registered person by OEM/ manufacturer means a person who optioned Sales Tax Registered Number (STRN). This is to be noted that how a dealer of motorcycle can get registration, if he had sales of 50 motorcycles per month.

The income on sales of 50 motorcycles @ Rs.2,000/- per unit is totaled Rs.100,000/- in gross and he has to pay the expenses like; rent of showroom Rs.20,000/-, salary of one staff as per Labour Law minimum salary      Rs.17,200/-, electricity bill Rs.2,000/-, fees for advocate at minimum Rs.5,000/-, other indirect expenses (office expenses) Rs.6,000/- and turnover tax as per specified schedule Rs.6,000/-. The total expenses are Rs.56,200/-.

There is net profit Rs.43,800/- in case all the units sold on retail basis because this product is falling in third schedule as per amended Sales Tax Act 1990. This is to be noted that turnover tax on Retailer of motorcycle is not defined independently, means this will fall in the category of 1.5%, this is also problematic for the retailers because turnover tax will be Rs.600/- per unit on total margin of Rs.2,000/-(This is maximum if Distributor himself sells as retailer) or it may be Rs.1000/- per unit if complete chain of Sales is necessary.

If we check above calculation the total cost of sales will be Rs.80,200/- means 80.2% of GP. This is requested to please suggest how can a dealer be registered person, this shows we are facilitating crime because retailer will get margin not more than Rs.1,000/- per unit which will end up with Rs.50,000/- and his expenses will be 80,200/-. Besides this nothing is explained in the case of second hand motorcycle sales because they are getting income from that sale to run their day to day expenses. This is also requested that please suggest who will deal with this tricky situation, please resolve the issue at earliest for saving Auto Sector of Pakistan, the lawyer added.

At the end of his detailed letter Lajpat Khatri suggested that if FBR wishes to run this business smoothly it should consider and allow his four points as under: 

  1. Make possible available new registration system till that all new provisions may be on hold because taxpayers are worried due to lengthy system of registration. Myself being Tax consultant/Advocate finding difficult the ways to get registered my new clients and worried about fees from dealers who had sales of 20 to 50 units per month. 
  • Turnover Tax may be applicable on turnover of Rs.25 million instead of Rs.10 million, especially for motorcycle dealers because 250 motorcycles (Taxable price) will be Rs.10 million for brands having sales price of Rs.47,000/- per unit inclusive of all taxes.
  • Sales Tax Registration compulsion for dealers, as per Finance Act 2019, may be made compulsory for those Dealers/ Retailers, who had sales of Rs.25 millions in year, this may be responsibility of the manufacturer/ OEM to get them registered.  
  • Advance Tax on Dealers/Retailers may be charged @ 0.1% uniformly as it is applicable on the Dealers/ Retailers of the Fertilizers.

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