FTO Clarifies Tax Rules for Foreign Missions on Vehicle Resales

The Federal Tax Ombudsman (FTO) Secretariat has informed embassies and foreign missions that vehicles acquired from the local market and subsequently utilized by these missions are exempt from additional duties upon resale.

The second session of the Diplomatic Grievances Redressal Cell (DGRC) was convened at the FTO headquarters. Representatives from the embassies of South Africa, the Philippines, the United States, Poland, Ireland, Denmark, Qatar, Romania, and Kuwait participated in the session.

Officials from the United Nations World Food Programme also attended. Dr. Asif Mahmood Jah, the Federal Tax Ombudsman of Pakistan, presided over the event, which included briefings from senior FTO Secretariat officials such as Almas Ali Jovindah (Head of DGRC), Dr. Arslan Subuctageen (Advisor Customs), and Khalid Javaid (Registrar).

Clarification on Vehicle Taxes

Responding to a query from the U.S. Embassy representative, Dr. Arslan affirmed that locally purchased vehicles used by foreign missions do not incur further duties upon resale, as taxes are already settled at the time of purchase. Addressing concerns from the Jordanian Embassy regarding challenges faced by departing officers in selling their vehicles, he suggested contacting the FBR’s “International Customs” section. He assured that the DGRC would provide assistance if the issue remained unresolved.

FTO’s Role and Mandate

Dr. Asif Mahmood Jah emphasized the FTO’s role in offering a free and effective platform for resolving tax-related matters, particularly those affecting foreign missions. He noted that the DGRC was established in response to recurrent concerns from the diplomatic community regarding procedural delays and obstacles encountered with FBR and Customs Authorities. With a target resolution time of 30 days, the DGRC aims to streamline communication and enhance institutional accountability.

DGRC’s Objectives and Achievements

Almas Jovindah stated that the DGRC was created to formalize a consistent and responsive interface between Pakistani taxation authorities and the diplomatic corps. Its mandate extends beyond administrative support, serving as a dedicated mechanism to ensure that diplomats’ grievances are addressed promptly and transparently.

Jovindah highlighted recent DGRC successes, noting that complaints from the embassies of Poland, Kuwait, Türkiye, and Belgium were resolved swiftly after facing considerable delays.

FTO Performance Statistics

Presenting FTO’s performance data, Jovindah reported that as of May 2025, the FTO had received over 15,000 complaints, with an average resolution time of 34 days and a 96% implementation rate. In 2024, 13,500 cases were processed, including 1,700 through Alternative Dispute Resolution (ADR). He also stated that the FTO is an independent body that monitors the FBR and intervenes in cases of overreach or inaction by its officers.

Customs Privileges and Legal Framework

Dr. Arslan Subuctageen, Advisor (Customs), provided a detailed overview of the legal framework governing customs privileges for diplomats. Referring to SRO 578(I)/2006 and its amendment S.R.O. 649(I)/2017, he clarified the duty-free import of vehicles by diplomatic missions based on reciprocity, as well as the graduated duties applicable upon resale depending on the vehicle’s age and category. He also confirmed that diplomats can make purchases at the designated duty-free diplomatic warehouse in Islamabad.

Dr. Subuctageen also clarified the distinction between diplomatic bags and diplomatic cargo. While diplomatic bags certified by the Sending State are exempt from inspection, cargo exceeding 500 kg is subject to scanning and requires documentation from the Ministry of Foreign Affairs (MOFA). Inspections may be conducted in the presence of mission and MOFA representatives in exceptional cases involving credible risk.

Tax Refunds and Zero-Rated Supplies

Khalid Javaid, Registrar of the FTO Secretariat, briefed attendees on the legal framework governing zero-rated supplies and tax refunds for diplomats under Rules 51, 52, and 52A of the Sales Tax Rules, 2006, and S.R.O. 918(I)/2019. Javaid noted that exemption certificates from MOFA enable both pre-supply and post-supply zero-rating within a 180-day period. Refunds, processed manually via the STARR system under Section 66 of the Sales Tax Act, 1990, and Rule 38(5), are directly credited to mission accounts. He added that delays exceeding one year can now be condoned for up to three years under SRO 1444(I)/2024. Regarding the Petroleum Development Levy (PDL), refunds are granted under Rule 36 of the Federal Excise Rules, 2005, contingent upon MOFA certification and original receipts. He underscored the importance of correct documentation and stated that while diplomats are exempt from some taxes under Article 34 of the Diplomatic and Consular Privileges Act, 1972, Pakistan extends refunds as a reciprocal gesture, not as a mandatory legal obligation.

Interactive Q&A Session

An interactive Q&A session allowed diplomats to voice their concerns. Several questions centered on procedural issues, including confusion about who is responsible for verifying tax compliance during purchases, particularly from retailers who fail to deposit taxes with the national exchequer. Khalid Javaid clarified that the supplier, not the mission, bears this responsibility and affirmed that diplomats retain their right to refunds even if the supplier fails to comply. He added that the FBR is authorized to take independent action against non-compliant retailers.

A participant from the Embassy of Kuwait inquired about delays in refund processing, especially when documents are lost or misdirected between MOFA and FBR. Khalid Javaid acknowledged these bureaucratic challenges and clarified that once MOFA issues an exemption certificate, the onus for processing the refund rests with the FBR. He urged missions to submit pending summaries directly to his office for coordinated follow-up and escalation.

Regarding older claims and refund eligibility, the UN World Food Programme representative noted unpaid refunds accumulated since 2016. Javaid explained that while the Sales Tax Act’s Section 66 imposes a statutory one-year limit, SRO 1444(I)/2024 now permits condonation for up to three years. He invited missions to submit complete case details to explore possible facilitation within legal parameters.

Appreciation and Acknowledgment

Diplomatic representatives thanked Federal Tax Ombudsman Dr. Asif Mahmood Jah and his team for organizing a practical seminar that directly addressed persistent operational issues. They recognized the DGRC’s objective to provide sustained institutional support to foreign missions in Pakistan. Certificates of participation were presented by Dr. Asif Mahmood Jah at the seminar’s conclusion.