Easy Ways to Cut Taxes on Imported Cars in Pakistan

Easy Ways to Cut Taxes on Imported Cars in Pakistan

 A Practical Guide

Importing cars in Pakistan is a popular choice for those seeking unique models, better quality, or advanced features not available in local vehicles. However, high import duties, taxes, and various fees can significantly inflate the cost. The good news is that there are ways to save on taxes when importing cars to Pakistan. This guide will walk you through some strategies to reduce your tax burden and make your dream car more affordable.

1. Understand the Tax Structure for Imported Cars in Pakistan

Before looking at ways to save, it's important to understand the different types of taxes and duties imposed on imported cars in Pakistan:

• Customs Duty: Based on the vehicle’s engine capacity (CC) and can range from 50% to 150%.
• Regulatory Duty (RD): Additional charges that can go up to 60%, depending on the car's engine capacity and the government’s policy at the time.
• Sales Tax (ST): Currently, around 17% of the vehicle's value, including customs and regulatory duties.
• Federal Excise Duty (FED): Applicable to certain categories of cars, ranging from 2.5% to 7.5%.
• Income Tax: Varies based on the value of the vehicle and the importer’s tax filer status.
• Additional Customs Duty (ACD): An extra charge that can range between 2% to 7% depending on the car's type and engine size.

2. Choose the Right Car Model and Engine Capacity

One of the most effective ways to save on taxes is to carefully select the car model and engine size:

• Go for Smaller Engine Capacities: Cars with smaller engine capacities (under 1000cc) attract significantly lower customs and regulatory duties compared to luxury cars with larger engines.
• Hybrid and Electric Vehicles: Pakistan offers reduced duties on hybrid and electric cars to encourage environmentally friendly choices. Hybrid vehicles with engines up to 1800cc are subject to only 50% of the applicable duty, while for electric cars, it can be even lower.

3. Import from Countries with Lower Duties

The country of origin can impact the import duty due to trade agreements and diplomatic relations. Pakistan has free or preferential trade agreements with several countries, including China and Malaysia. Importing cars from these countries can result in reduced duties.

4. Import a Used Car Instead of a New One

Pakistan's import policies allow for the import of used cars under specific schemes such as:

• Personal Baggage Scheme
• Transfer of Residence Scheme
• Gift Scheme

These schemes are meant for overseas Pakistanis and generally have lower duties compared to importing a new car. Cars older than three years are usually not eligible, and specific depreciation rates apply, which can reduce the payable duty.

5. Take Advantage of Depreciation Allowances

Pakistan allows a depreciation allowance on used cars, which reduces the assessable value of the car and subsequently the amount of customs duty. The depreciation is calculated on a flat rate basis:

• 1% per month for vehicles up to 60 months (5 years) old.

For instance, if you are importing a 3-year-old car, a 36% depreciation allowance will be applied to the vehicle's value, reducing the customs duty significantly.

6. Timing Your Import Wisely

Keep an eye on government policy changes, budget announcements, and policy revisions. Sometimes, the government introduces tax relaxations or exemptions during specific periods or for specific types of vehicles. Importing during these windows can save a substantial amount.

7. Consider Temporary Import Options

If you are an overseas Pakistani or a foreign national who plans to use the car in Pakistan temporarily, there are options like the Carnet de Passage (temporary import permit). Under this arrangement, you can bring your car into Pakistan without paying hefty import duties, provided you re-export it within a specified time frame.

8. Use a Reliable Customs Agent

Navigating the import process in Pakistan can be complicated due to bureaucracy and changing regulations. Hiring a reliable customs agent or broker who understands the latest rules and exemptions can help you:

• Properly classify your vehicle for the lowest applicable duties.
• Ensure all paperwork and documentation are in order.
• Navigate through the customs process smoothly, avoiding any potential fines or penalties.

9. Consider Corporate or Diplomatic Import Options

Some companies, diplomats, and international organizations in Pakistan are eligible for reduced taxes or exemptions on car imports. If you fall under any of these categories, it might be worth exploring these options.

10. Stay Updated on Government Policies and Reforms

The Government of Pakistan frequently updates its automotive policy to encourage local manufacturing or promote environmentally friendly vehicles. Staying updated on these changes through reliable news sources or the Federal Board of Revenue (FBR) website can help you make timely decisions that could save you on taxes.

Conclusion

Importing a car into Pakistan can be an expensive process due to various taxes and duties. However, by understanding the tax structure, choosing the right car model, taking advantage of trade agreements, depreciation allowances, and keeping up with policy changes, you can significantly reduce the tax burden. Always consider consulting with a customs agent or tax advisor to explore the best strategies for your specific situation and avoid any unforeseen expenses.

By following these tips, you can make importing your dream car into Pakistan a more financially viable option.