The federal government is expected to maintain the current tax and duty structure on automobiles in the upcoming Budget 2025–26, despite several proposals for reform, sources familiar with the matter told this correspondent.
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Currently, vehicles in Pakistan are subject to one of the highest tax burdens in the region. These include a 17% General Sales Tax (GST), Federal Excise Duty (FED) ranging from 10% to 20% depending on engine capacity, and Withholding Tax based on the vehicle’s final price. Imported vehicles further attract steep customs and regulatory duties, making them significantly more expensive.
Provincial governments also impose their own levies such as registration fees, annual road (token) taxes, and luxury taxes—most of which vary by engine size, invoice value, and the tax status of the buyer.
As part of its budget proposal, the Federal Board of Revenue (FBR) has suggested introducing a new 5% duty tier to simplify the current complex duty regime. The objective is to rationalize the structure and provide a more streamlined framework for auto imports.
Currently, duties and taxes on new imported vehicles can range from 50% to 100%, depending on engine size and vehicle category. In contrast, the Ministry of Commerce and Ministry of Industries had jointly proposed reducing this range to 5%–30% for new cars with engine capacities up to 1801cc. However, sources say Prime Minister Shehbaz Sharif has turned down the suggestion to increase the number of duty slabs from five to six. Instead, he has approved a plan to consolidate them into four slabs, with a maximum customs duty cap of 15%, down from the existing 20%, to be phased in over five years.
Current Tax Breakdown on Automobiles:
- Customs Duty: Can reach up to 100% for luxury and large-engine imported vehicles.
- Sales Tax (17%): Applied uniformly on all vehicles based on the final price.
- Federal Excise Duty: Ranges from 10% to 20%, increasing with engine capacity.
- Registration & Token Taxes: Set by provincial governments, vary by region and engine size.
- Withholding Tax: Levied at the time of sale, based on vehicle value and tax filer status.
- Luxury Tax: Applied on vehicles above a specified engine size threshold, typically 1800cc or 2000cc.
- Regulatory Duties: Imposed periodically to protect local industry, though reduced in some past budgets.
The government is also continuing efforts to promote the adoption of Electric Vehicles (EVs) and Hybrid Electric Vehicles (HEVs) through potential tax incentives and exemptions, aimed at improving affordability and attracting investment in clean mobility.
Discussions are also underway to allow older used car imports, potentially extending the allowable age limit from five to ten years—a move that could offer more affordable vehicle options for consumers.
Additionally, under commitments made to international lenders such as the IMF, Pakistan is expected to gradually reduce average import tariffs over the next five years. This could bring down prices for imported vehicles, though the impact will be phased.
The upcoming budget may not introduce sweeping changes to the auto sector, but it signals a clear direction: simplification of tax structures, a gradual shift towards lower duties, and a policy pivot to support modern technologies and consumer choice while still protecting local assemblers.