Personal Property in Pakistan: Cars and Token Tax

What is Token Tax?

Token tax is a tax on motor vehicles, including cars. The official name of this tax is the Motor Vehicle Tax, but it is commonly known as token tax. It is a provincial tax levied and collected by the governments of Pakistan's provinces. As cars are a type of motor vehicle, they incur token tax, and it is the duty of a car's owner to pay the tax on time.

Provincial governments collect this tax under their respective laws, which are fairly similar in nature. The applicable law in the Punjab is the Punjab Motor Vehicles Taxation Act, 1958.

The tax base for token tax is engine power in cubic centimeters (cc), and in some cases seating capacity. Thus, this tax is not an ad valorem tax, i.e., it is not levied on the value of a car. The two factors that may affect the tax amount are:

1. Engine capacity of the car; and
2. Seating capacity.

For a private car, engine capacity is the only factor that determines token tax. You can easily find the engine capacity of your car by looking at the appropriate column or row in your car's registration book. The original documents you received when you bought the car will also show this information.

When Should Token Tax Be Paid?

Car owners may pay token tax in three ways:

1. Annual payment;
2. Quarterly payment; and
3. Lifetime payment.

Annual payment of the Motor Vehicle Tax or token tax is to be made before July 31 of each year.

Quarterly payments are made according to the four quarters of a financial year. A financial year starts on July 1 of a calender year and ends on June 30 of the next year. The four quarters of a financial year are:

First Quarter                   July 1 to September 30
Second Quarter               October 1 to December 31
Third Quarter                  January 1 to March 31
Fourth Quarter                April 1 to June 30

The last date for payment of token tax is:

First Quarter                   July 31
Second Quarter              October 31
Third Quarter                 January 31
Fourth Quarter               April 30

Note that quarterly payments are unavailable for private cars. Persons owning a car for their own use can pay token tax annually or by lifetime payment.

What is Lifetime Token Tax Payment?

Lifetime payment is a way to pay the token tax on a car or other motor vehicle for its entire life. You will not need to pay the tax every year after making a single lump-sum payment. This type of payment is not only convenient for taxpayers, but is also a better collection practice for the government. Major benefits of lifetime payment of token tax are that it:

1. Reduces the number of payment transactions; and
2. Frees the car owner from remembering to pay token tax every year in time to avoid penalties.

Examples of Lifetime Token Tax

Nauman is a car dealer in Lahore selling used cars in Pakistan. Arsalan has chosen to buy a used Suzuki Cultus from Nauman. How much lifetime token tax will Arsalan have to pay if nothing has been paid yet?

The lifetime token tax for a Suzuki Cultus is Rs 19,500. This amount is broken down as follows:

Token Tax                     Rs 10,000
Income Tax                   Rs   7,500
Professional Tax             Rs   2,000
                                      ------------
Total                              Rs 19,500

Arsalan will have to pay Rs 19,500 – the actual amount without penalty and without any processing expense to make his application ready for submission at a counter of the Excise and Taxation Department.

Zahid put his Suzuki Cultus up for sale at a showroom in Islamabad famous for selling used cars in Lahore and Islamabad. The dealer told him that he would have to clear the outstanding token tax or the buyer would deduct Rs 18, 960 from the price offered for the car. If Zahid has paid Rs 540 token tax and Rs 750 income tax at a post office in Rawalpindi, what amount should the buyer deduct?

Remember that in the previous example, the total amount of lifetime token tax for a Suzuki Cultus was Rs 19,500. Thus, the dealer should deduct the following amounts:

Total Token Tax Payable                       Rs 10,000

Token Tax Paid                                    Rs      540

                                                               ------------                                         ------------

Balance Payable                                   Rs 9,460

Total Income Tax Payable                     Rs  7,500

Income Tax Paid                                  Rs     750

                                                               ------------                                         ------------

Balance Payable                                   Rs 6,750

Total Professional Tax Payable               Rs 2,000

Professional Tax Paid                            Nil

                                                              -------------                                         ------------

Balance Payable                                   Rs 2,000

Total amount that the dealer should deduct = 9,450 + 6,750 + 2,000 = Rs 18,200

Who Collects Token Tax?

The Excise and Taxation Department collects token tax. However, post offices across the country also collect token tax as collecting agents.

Who Pays Token Tax?

Motor vehicle owners pay token tax on their motor vehicles. 

What Happens if the Owner does not Pay Token Tax?

If the owner of a motor vehicle does pay token tax, the Excise and Taxation Department takes action against the defaulting vehicle. In the event of default, the Department collects tax with penalty and by seizure of the ownership documents and the vehicle itself.

The Excise and Taxation Department is running an active campaign against tax-defaulting cars during February 2014. Following computerization of the motor vehicle records, it has become easier for the Department to identify defaulting cars. The Department has also provided car owners with a way to check the status of their token tax payments.