KARACHI: Honda Atlas Cars Limited is engaged in litigation with the Federal Board of Revenue on multiple fronts, where total tax contingencies have crossed Rs17 billion, as revealed in the Annual Report of the company for the year 2026. The automobile manufacturer based in Lahore is involved in three different tax disputes, which include Customs Duty, Sales Tax, and Export Concession Duty. However, the company has not kept provision of one rupee against these disputes.
It is clear that the level of controversy surrounding tax collection in Pakistan‘s passenger automobile manufacturing industry is substantial, as regulations remain unclear, and changing government notifications lead to lengthy litigation processes for automobile manufacturers.
Three Disputes in Three Legal Battles
This dispute between Honda Atlas Cars FBR is not a single case at all. Rather, this is a dispute carried out through three separate battles, which take place before three separate tax authorities and on three separate grounds – but which all have one thing in common: Honda expects to win.
Rs5.40 Billion Customs Dispute on Royalty Payments
The second-largest unresolved claim is related to the imposition of customs duties worth Rs5.40 billion, which have been justified by the Collector of Customs (Appeals) based on assessments done from April 2011 to March 2022.
According to the tax authorities, the licence fees and royalty charged by Honda Atlas Cars against its Japanese parent company, Honda Motor Co. Ltd., should be included in the declared value for the purpose of customs duty calculation for Completely Knocked Down packages and parts. The inclusion of the licence fee and royalties in the total value will lead to an increase in duties.
The interpretation above is strenuously countered by Honda Atlas Cars. This is because according to Honda, the royalty and license fees paid are associated with the domestic production process rather than the imported goods and as such are not considered part of the customs value in line with relevant law. Currently, the issue is under consideration by the Customs Appellate Tribunal.
Rs. 63.60 Million Input Tax Refund Case in the Lahore High Court
While the other cases have larger amounts, there is an equally important case involving Rs. 63.60 million worth of input tax refunds for the period from July 2012 through June 2014. The Deputy Commissioner of Inland Revenue denied the application because the refund claims pertained to exempt supplies and were thus non-admissible.
It took the issue up before the Lahore High Court in February 2019. The Lahore High Court granted an injunction against the unfavourable decision by the tribunal, thereby preventing enforcement till the appeal was decided finally. Yet again, Honda Atlas Cars does not acknowledge any such provision because their lawyers say that the decision will go in their favour.
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Rs12.47 Billion Duty Liability – Most Dangerous Element on File
In connection with Honda Atlas Cars FBR tax case, there is a serious duty liability amounting to Rs12.47 billion due to a new regulation that came into effect through SRO 2069(I)/2022 dated December 2022.
This was an indication that manufacturers had to export a predetermined number of vehicles each year in order to enjoy the concessionary duties provided in SRO 656/2006. With the amendment, manufacturers had to make certain export levels or lose the privilege of the concessionary duty. The manufacturers could not claim any concessionary duty since the regular duty rate would apply retroactively.
However, Honda Atlas Cars opposed the amendment via a writ petition filed with the Lahore High Court, contending that SRO 656 was not designed to have any obligations attached to it. Rather, adding those obligations changes its nature completely. The Lahore High Court agreed with their point of view on the interim basis and ordered the Engineering Development Board to keep providing them facilities for importing goods at concessional rates till the writ petition is decided. This order continued until March 31, 2026.
Reasons Why Honda Atlas Does Not Provide for the Provisions
This is because of the accounting rule which states that if there is no probability of the company having to make payments on account of a particular issue, then it is not obliged to provide for the provisions. Where the opinion is confirmed by the lawyers, the company is not only entitled but also required to reflect the same in their books.
What sets apart the Honda Atlas Cars FBR taxation case is its unprecedented nature, considering the size of the total risk involved, which runs over Rs17 billion. For an organization recording a profit before taxation of Rs5.09 billion for the marketing year 2026, the total liability translates to more than three times the total profits earned by the firm in one year.
