The International Monetary Fund (IMF) has opposed Pakistan’s proposal to introduce a reduced 1 percent sales tax on new energy vehicles, including electric vehicles (EVs), creating uncertainty over the finalization of the country’s upcoming Auto Policy 2026-31.
According to a report, Pakistan proposed imposing a 1 percent sales tax on new energy vehicles while reducing the sales tax on hybrid vehicles to half of the standard 18 percent rate. However, the IMF reportedly rejected the proposal and requested further clarification from the government.
The disagreement comes as authorities work to finalize the Auto Policy 2026-31 before the current policy expires at the end of June. Officials said differences between the Ministry of Industries and the Ministry of Commerce over tariff structures have also delayed the policy’s completion.
The Ministry of Industries has proposed several incentives to encourage EV adoption. These include a 1 percent customs duty on imports of EV-specific parts for the first three years, exemption from sales tax on imported components, and a 1 percent sales tax on locally assembled and sold new energy vehicles for five years.
The ministry has also recommended exemptions from federal excise duty, capital value tax, and withholding tax on EV sales during the policy period to accelerate the shift toward cleaner transportation.
However, Finance Ministry officials said the IMF favors retaining the standard 18 percent sales tax on all vehicles and providing support through direct subsidies instead of tax concessions.
The draft policy also aims to boost localization, targeting up to 85 percent domestic value addition in two- and three-wheelers, including electric vehicles, by 2030. It further proposes higher levies on expensive internal combustion engine vehicles to promote the adoption of greener alternatives.
With the current auto policy expiring this month, any proposed changes to sales tax or import duties will need to be incorporated into the Finance Bill 2026-27, which is expected to be approved by the National Assembly next week.
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