The federal government plans to increase advance taxes on luxury vehicles in the upcoming 2025-26 budget.
Sources told ProPakistani that the Federal Board of Revenue (FBR) has finalized its proposals and submitted them to the International Monetary Fund (IMF).
Currently, withholding tax rates on vehicles are as follows: 2 percent for engines between 1,300cc and 1,600cc; 3 percent for 1,601cc to 1,800cc; 5 percent for 1,801cc to 2,000cc; 7 percent for 2,001cc to 2,500cc; 9 percent for 2,501cc to 3,000cc; and 12 percent for vehicles above 3,000cc.
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This move follows last year’s transition to a value-based taxation model, replacing fixed advance taxes with levies linked to vehicle prices across all categories.
The new measure aims to generate billions more in revenue for the next fiscal year by expanding tax coverage to include smaller engine variants now classified as premium.
In 2024, the FBR collected over Rs. 4 billion in withholding taxes from all vehicle segments, with officials projecting significant growth in revenue once the revised brackets are implemented.
While tightening tax restrictions on luxury gasoline vehicles, the government will maintain reduced sales tax rates for locally assembled hybrid electric vehicles (HEVs) through June 2026. The current rates of 8.5 percent for hybrids up to 1,800cc and 12.75 percent for those between 1,801cc and 2,500cc will remain unchanged.
