Prime Minister Shehbaz Sharif has approved the new auto policy for 2026-31 for five years. The policy rejects the International Monetary Fund’s (IMF) proposal to raise sales tax on electric vehicles to 18 per cent.
According to the policy document, the government plans to increase vehicle exports to $6 billion. It has also proposed a 10 per cent federal excise duty on electric vehicles worth more than $75,000.
What are the key tax changes?
- Import duties on vehicles will be reduced in phases.
- Tariffs in the auto sector will be brought down to 15 per cent by 2030-31.
- Sales tax on battery electric vehicles will remain at 1 per cent from 2026 to 2031.
- Range-extended electric vehicles will face a 6 per cent sales tax.
- Plug-in hybrid vehicles will have a proposed sales tax rate of 9 per cent.
- Import duties on electric vehicles will be reduced.
- Lower tariffs are proposed for small electric vehicles priced below $15,000.
- An automotive development levy will apply to vehicles with engines larger than 1,000cc.
How will the policy support electric vehicles?
The government is planning to make electric vehicles easier to buy through better financing options, the reports say.
The financing limit for electric vehicles is proposed to increase from Rs3 million to Rs10 million. The repayment period will also be extended from three years to five years.
The policy is also focusing on making small vehicles more affordable for people with lower incomes.
What measures will protect vehicle buyers?
The government also plans to introduce international safety standards for locally made and imported vehicles.
Vehicle companies will also be required to include consumer protection terms in their agreements with buyers.
