Does the transfer tax go down as the car gets older, and when does it stop?

The advance income tax collected when a car changes hands gets smaller as the car ages and disappears once the car is more than five years past its first registration. The rules sit in section 231B of the Income Tax Ordinance, 2001 and in Division VII of Part IV of the First Schedule, as amended to 30 June 2026. They apply to transfers made in tax year 2027 (1 July 2026 to 30 June 2027).

What does the law say?

Section 231B(2) requires every motor vehicle registering authority of the Excise and Taxation Department to collect advance tax “at the time of transfer of registration or ownership” of a motor vehicle, at the rates in Division VII. Its proviso then says no advance tax is collected “on transfer of vehicles after five years from the date of first registration in Pakistan.”

Division VII, clause (2) sets the transfer amounts by engine capacity:

Engine capacity	Tax on transfer (Rs.)
Up to 850cc	Nil (shown as “-”)
851cc to 1000cc	5,000
1001cc to 1300cc	7,500
1301cc to 1600cc	12,500
1601cc to 1800cc	18,750
1801cc to 2000cc	25,000
2001cc to 2500cc	37,500
2501cc to 3000cc	50,000
Above 3000cc	62,500

Where engine capacity does not apply and the vehicle’s value is Rs. five million or more, the first proviso to clause (2) sets the tax at Rs. twenty thousand. The second proviso says “the rate of tax to be collected under this clause shall be reduced by ten percent each year from the date of first registration in Pakistan.”

Section 231B(6) defines “date of first registration” for the whole section:

• (a) for a vehicle acquired from the Armed Forces of Pakistan, the date the broad arrow number was issued;
• (b) for a vehicle acquired from a foreign diplomat or a diplomatic mission in Pakistan, the date of registration by the Ministry of Foreign Affairs;
• (d) in all other cases, the date of first registration by the Excise and Taxation Department.

Clause (c), which covered unregistered vehicles acquired from the Federal or a Provincial Government, was omitted by the Finance Act, 2026.

How does the reduction work year by year?

The Ordinance says “ten percent each year” but does not say whether each year’s cut is ten percent of the original amount or ten percent of the previous year’s figure, or whether a “year” means a completed year. The table below uses one plain reading: ten percent of the original amount for each completed year since first registration. It is shown for illustration, not as a settled method.

Completed years since first registration	Share of Division VII amount	1001cc to 1300cc	1601cc to 1800cc	2001cc to 2500cc
Less than 1	100%	Rs. 7,500	Rs. 18,750	Rs. 37,500
1	90%	Rs. 6,750	Rs. 16,875	Rs. 33,750
2	80%	Rs. 6,000	Rs. 15,000	Rs. 30,000
3	70%	Rs. 5,250	Rs. 13,125	Rs. 26,250
4	60%	Rs. 4,500	Rs. 11,250	Rs. 22,500
More than 5	Not collected	Nil	Nil	Nil

If the reduction is instead applied to the previous year’s figure, the 1001cc to 1300cc amounts would run Rs. 7,500, Rs. 6,750, Rs. 6,075, Rs. 5,467.50 and Rs. 4,920.75. The gap between the two readings is small but real, and the law does not choose between them. It also leaves open how a transfer between the fourth and fifth anniversaries is treated, so the table stops at four completed years.

Worked example (illustrative figures)

Case 1: ordinary used car. Bilal in Multan sells a 1300cc car first registered with Excise and Taxation on 15 March 2023. The transfer is recorded on 10 October 2026, three completed years later. Both parties are on the active taxpayers’ list.

1. Division VII amount for 1001cc to 1300cc: Rs. 7,500.
2. Reduction on the reading above: 3 years x 10% = 30%.
3. Rs. 7,500 x 30% = Rs. 2,250.
4. Tax on transfer: Rs. 7,500 - Rs. 2,250 = Rs. 5,250.

Case 2: ex-Army jeep. Sana in Rawalpindi buys a jeep auctioned by the Armed Forces. Its broad arrow number was issued on 1 January 2019. She registers it with Excise and Taxation for the first time in August 2026. Under section 231B(6)(a) the date of first registration is 1 January 2019, which is more than five years before both the registration and any later transfer. The proviso to section 231B(1), read with section 231B(6), rules out registration tax, and the proviso to section 231B(2) rules out transfer tax.

What if the person is not on the active taxpayers’ list?

The first proviso to rule 1 of the Tenth Schedule increases the tax collected under section 231B “by two hundred percent of the rate specified in First Schedule” for persons not on the active taxpayers’ list. That is three times the Division VII amount. In Case 1, Rs. 5,250 x 3 = Rs. 15,750, if the reduced amount is the rate being increased. The Ordinance does not say in so many words in which order the reduction and the increase apply. Section 231B(2) also does not name whether the buyer or the seller is the person from whom the tax is collected, so it does not say whose list status decides the increase.

Common mistakes

• Counting from the date of purchase. The reduction and the five-year limit run from the date of first registration, not from when the current owner bought the car.
• Using the ordinary registration date for an ex-Army or ex-embassy vehicle. Section 231B(6)(a) and (b) move the start date back to the broad arrow number or Ministry of Foreign Affairs registration.
• Assuming the five-year stop covers every vehicle tax. It only stops the section 231B transfer tax. The advance tax collected with the annual token under section 234 has its own, separate time limits.
• Relying on the old Government-vehicle rule. Clause (c) of section 231B(6) no longer exists after the Finance Act, 2026, although the proviso to section 231B(1) still mentions clauses (a), (b) and (c).

What to check in the official text

Read section 231B, especially the proviso to sub-section (2) and sub-section (6), clause (2) of Division VII of Part IV of the First Schedule with both provisos, and rule 1 of the Tenth Schedule. Check the date of first registration shown on the registration book, or the broad arrow or Ministry of Foreign Affairs record for ex-Armed Forces and ex-diplomatic vehicles. The provincial transfer fee charged by Excise and Taxation is a separate provincial levy outside this corpus.