New budget targets auto elite, spares hybrids amid pressure from Tokyo
Pakistan is set to impose steeper withholding taxes on a wide range of luxury vehicles in its upcoming 2025-26 budget, part of a broader revenue-boosting push to meet International Monetary Fund (IMF) benchmarks — even as it moves carefully to accommodate Japanese pressure on hybrid vehicle policy.
According to senior officials, the Federal Board of Revenue (FBR) has finalized a proposal to raise withholding tax rates on vehicles above 1,300cc, increasing levies across the board by 1 to 4 percentage points. The new rates — ranging from 3% on mid-range sedans to 16% on high-end SUVs — have already been shared with the IMF as part of the government’s fiscal consolidation plan.
The tax overhaul, building on last year’s shift from fixed to value-based taxation for vehicles over 2,000cc, is expected to net billions of rupees in additional revenue. The FBR has already collected over PKR 4 billion in vehicle-related withholding taxes in the current fiscal year, with fresh estimates projecting a sharp rise under the proposed brackets.
But while Islamabad tightens the tax screws on luxury gasoline vehicles, it is taking a softer stance on green technology. The government has decided to retain reduced sales tax rates on locally assembled hybrid electric vehicles (HEVs) through June 2026 — 8.5% for units up to 1,800cc and 12.75% for those between 1,801cc and 2,500cc.
The move comes after the Japan Chamber of Commerce and Industry (JCCI) urged Prime Minister Shehbaz Sharif to prioritize HEVs over battery electric vehicles (BEVs), citing Japan’s strong automotive footprint in Pakistan. The Prime Minister’s Office has since directed ministries to evaluate the JCCI proposal and chart a policy response.