New GST Rules for Used Cars sale in Pakistan: Taxes and

The GST Council has introduced significant changes in the taxation of used car sales, impacting both buyers and sellers in the market. These changes aim to streamline taxation while ensuring fairness for specific categories of vehicles. Here’s a detailed guide to help you understand the new GST rules on used cars.

Key GST Changes on Used Cars

The GST Council has recommended an 18% tax rate on the margin figure of used car sales, specifically targeting:

• All electric vehicles (EVs)
• Petrol cars with an engine capacity of 1,200 cc or more or a length of 4,000 mm or more
• Diesel cars with an engine capacity of 1,500 cc or more or a length of 4,000 mm or more
• SUVs across all fuel types

For cars with smaller engine capacities and lengths below the specified thresholds, the GST rate remains at 12%, as per the current rules. This distinction provides some relief for buyers and sellers dealing with compact and economical vehicles.

No GST on Individual Non-Registered Sales

If the transaction occurs between individual sellers who are not GST-registered, no GST applies. This rule covers all types of cars, ensuring that private transactions remain untaxed under the GST regime.

Input Tax Credit (ITC) and Its Impact

Most businesses are unable to claim Input Tax Credit (ITC) on cars purchased, even if the vehicles are registered under their GST-registered business name. However, car dealers and transporters can claim ITC for such purchases, provided they meet eligibility requirements.

According to Chartered Accountant Bimal Jain, founder of A2Z Taxcorp LLP:

• Businesses eligible to claim ITC must pay GST on the sale value of the car.
• Businesses not eligible for ITC can opt for the margin scheme and pay GST only on the difference between the selling price and the purchase price (or depreciated value if applicable).

No GST on Losses

Another noteworthy aspect is that no GST needs to be paid if the vehicle is sold at a loss. This provision brings some financial relief to businesses and individuals facing depreciation losses in the used car market.

Understanding the Margin Scheme

The margin scheme allows used car dealers to pay GST only on the profit margin, rather than the entire sale value. This rule applies under the following conditions:

1. The dealer does not avail ITC for the vehicle purchase.
2. GST is calculated on the difference between the sale price and purchase price or the depreciated value if depreciation benefits were claimed.

However, losses on individual sales cannot offset positive margins from other sales. Each transaction is treated independently.

Reverse Charge Liability Remains Unchanged

The GST Council has not specified any new reverse charge liability under the updated rules. This ensures that sellers and buyers are not burdened with additional compliance requirements.

• 18% GST applies to electric vehicles, larger petrol and diesel cars, and SUVs.
• Smaller cars remain taxed at the 12% GST rate.
• Private sales between individuals who are not GST-registered are exempt from GST.
• The margin scheme benefits dealers who do not claim ITC.
• No GST on losses during resale.

These updates emphasize fairness and clarity in the used car market while ensuring tax compliance. Buyers and sellers should consult tax professionals or relevant authorities for tailored advice based on specific transactions.

Ali Hassan

Ali Hassan, a trusted expert with 5 years of experience, delivers reliable insights across diverse topics like news, jobs, education and trends on biseworld.com, ensuring authentic information with excellence.