By Our Correspondent
ISLAMABAD : The federal government has imposed a 25 percent sales tax on the import and local supply of hybrid vehicles following the expiry of tax concessions at the close of the 2025-26 fiscal year, a move expected to increase vehicle prices and reshape Pakistan’s automobile market.
The revised tax structure came into force on July 1, 2026, under the Finance Act 2026-27 after the government allowed earlier incentives for hybrid and electric vehicles to lapse.
Officials said hybrid vehicles that previously benefited from concessional taxation are now subject to the standard 25 percent sales tax after being shifted to Schedule II of SRO 297(I)/2023.
The decision forms part of the government’s broader fiscal strategy aimed at increasing revenue while revising tax incentives introduced to encourage environmentally friendly transportation.
Industry experts believe the withdrawal of concessions will significantly increase the retail prices of both imported and locally supplied hybrid vehicles, potentially affecting consumer demand in the coming months.
Automobile dealers say buyers had rushed to book hybrid vehicles before the tax concession expired, anticipating a substantial increase in prices once the new fiscal measures became effective.
The latest taxation policy also marks the end of several incentives introduced for Pakistan’s electric vehicle sector.
Among the expired concessions were exemptions on the import of completely knocked down (CKD) kits used by local manufacturers assembling electric vehicles within Pakistan.
The incentives had applied to small passenger vehicles, sport utility vehicles equipped with batteries of up to 50 kilowatt-hours, and light commercial vehicles powered by batteries of up to 150 kilowatt-hours.
Until June 30, locally manufactured or assembled electric vehicles in these categories were subject to a reduced sales tax of only one percent, encouraging investment in cleaner transport technologies.
Government officials had earlier indicated that many of these concessions would expire with the beginning of the 2026-27 fiscal year unless extended through the new federal budget.
Although earlier discussions suggested locally assembled hybrid vehicles might continue receiving preferential tax treatment, the final provisions approved under the Finance Bill subjected hybrid vehicles to the higher sales tax rate.
Automobile manufacturers are now assessing the financial impact of the revised taxation policy on production costs, pricing strategies and future investment plans.
Industry representatives warn that higher taxes may discourage consumers from choosing hybrid vehicles despite their lower fuel consumption and environmental benefits.
Pakistan’s automotive market has witnessed growing interest in hybrid technology over recent years as rising fuel prices encouraged buyers to consider more fuel-efficient alternatives.
Several international automobile brands have expanded their hybrid vehicle offerings in Pakistan, while local assemblers have also increased investment in environmentally friendly models.
Economists say taxation policies play an important role in influencing consumer behaviour, particularly in developing markets where vehicle affordability remains a major concern.
Environmental experts have also expressed concern that reducing incentives for hybrid and electric vehicles could slow Pakistan’s transition toward cleaner transportation and lower carbon emissions.
They argue that many countries continue offering tax benefits and financial incentives to accelerate the adoption of low-emission vehicles and reduce dependence on fossil fuels.
Government officials, however, maintain that fiscal adjustments are necessary to improve revenue collection while balancing budgetary requirements under the new financial year.
Despite the higher sales tax, industry analysts expect demand for hybrid vehicles to remain relatively stable among consumers seeking long-term fuel savings, although overall sales growth may slow.
Automobile dealers anticipate price revisions across several hybrid models in the coming weeks as manufacturers and importers adjust to the new taxation framework.
Consumers planning to purchase hybrid vehicles are also expected to face higher financing costs as banks revise vehicle valuation following increased market prices.
The government has indicated that it will continue reviewing taxation and investment policies for the automotive sector as Pakistan seeks to expand domestic manufacturing while promoting technological advancement.
The latest fiscal measures represent one of the most significant changes to Pakistan’s vehicle taxation policy in recent years and are expected to influence purchasing trends, industry investment and the future development of hybrid and electric mobility across the country.
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