Pakistan’s upcoming automobile policy is likely to bring major revisions to the existing tax structure, including a proposed reduction in sales tax to 1% for electric vehicles (EVs) priced at $75,000 or less, alongside the introduction of additional levies on petrol-powered vehicles.
Sources familiar with the proposed policy suggest that the government could offer approximately Rs85 billion in sales tax concessions for electric vehicles. At the same time, an alternative taxation strategy is being considered to recover an equivalent amount in government revenue.
Under the proposed framework, electric vehicles valued at up to $75,000 would be subject to a reduced sales tax rate of just 1%. According to estimates shared by sources, implementing this measure could result in tax relief amounting to Rs85 billion.
Meanwhile, the International Monetary Fund (IMF) has reportedly recommended raising the sales tax on electric vehicles from the proposed 1% to 18%. As a result, the planned tax concessions and other adjustments included in the new automobile policy would require approval from the international lender before implementation.
To address the potential revenue shortfall arising from the Rs85 billion tax relief, the government is also exploring an alternative revenue-generation mechanism. This approach would involve introducing additional taxes and levies as part of the broader automobile policy.
Introduction of a New Automotive Development Levy
According to sources, the government is considering amendments to the Finance Bill that would introduce provisions for a Federal Excise Duty (FED) and a new Automotive Development Levy as part of the proposed taxation framework.
Under the suggested measures, vehicles equipped with engines ranging from 1,001cc to 2,000cc could be subject to a 2% Automotive Development Levy. Meanwhile, vehicles with engine capacities of 2,001cc or higher may attract a levy of 10%.
The proposed Automotive Development Levy would cover all petrol-powered vehicles, regardless of whether they are produced domestically or imported from other countries.
Additionally, the new automobile policy could impose a 10% Federal Excise Duty on electric vehicles with a value exceeding Rs20 million.
This proposal would introduce an additional tax burden on premium electric vehicles, even as the government considers reducing sales tax for EVs priced at up to $75,000 under the broader automotive policy.
Proposed Carbon Levy on Petrol, Diesel and Conventional Vehicles
Pakistan’s proposed automobile policy is also likely to introduce a carbon levy on petrol, diesel and vehicles powered by internal combustion engines (ICE).
According to sources familiar with the proposals, the planned carbon levy on petrol, diesel and ICE vehicles could generate approximately Rs25 billion in government revenue. However, another projection included in the proposed measures estimates that levies imposed on these fuels and conventional vehicles could bring in as much as Rs37 billion.
Both revenue projections have been mentioned in connection with the government’s proposed taxation measures. However, the exact distinction between the two estimates and how they relate to each other has yet to be clarified.
Proposed New Levies on Buses and Trucks
The government is also exploring the possibility of introducing an Automotive Development Levy on buses and trucks, a measure projected to generate approximately Rs45 billion in additional revenue.
These proposed taxation measures are part of a broader alternative revenue strategy aimed at offsetting the estimated Rs85 billion in sales tax concessions being considered for electric vehicles. The plan seeks to compensate for the potential revenue shortfall through additional taxes and levies on various categories of vehicles.
However, the proposed measures have not yet been finalised and will require further review and approval from the International Monetary Fund (IMF) before they can be formally included in Pakistan’s new automobile policy.
