Sigh of relief for auto industry and buyers as Pakistani government decided against jacking up sales tax on locally manufactured or assembled vehicles with engine capacities up to 850cc in the upcoming budget.
Sources familiar with development claimed proposals to raise the sales tax rate from the current 10–12.5% to as much as 15–18% for small cars were rejected.
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This decision means that concessional tax treatment under Entry No. 72 of the Eighth Schedule of the Sales Tax Act, 1990, will likely remain in effect, providing relief to those looking to get their hands on entry level rides and supporting automotive industry where small vehicles remain popular and affordable choice.
The discussions are ongoing with International Monetary Fund (IMF), which urged the nation to introduce carbon levy targeting petrol, diesel, and internal combustion engine vehicles with engines exceeding 850cc. IMF estimates that this levy could generate over Rs. 25 billion in annual revenue by discouraging fossil fuel consumption and promoting environmentally friendly alternatives.
The government is also likely to make final decision on carbon levy early next week as budget negotiations with International Monetary Fund (IMF) continue.
Budget 2025-26 budget may increase taxes on large vehicles (over 1,300cc), with higher withholding taxes proposed on high end cars. To ease impact, the government is considering relaxing import rules for used cars up to five years old, offering cheaper alternatives.
These changes aim to simplify the tax system and boost government revenue, following a successful shift to value-based taxation in 2024.
