The new budget proposes significant tax incentives for environmentally friendly electric vehicles (EVs) while introducing a carbon levy on conventional fuel-powered vehicles.
As a result, larger vehicles are expected to become more expensive, while locally manufactured electric vehicles could become more affordable. However, existing tax rates on hybrid vehicles are likely to remain unchanged.
According to the budget document, the government has proposed reducing the customs duty on motors, batteries, and other components used in the local production of electric vehicles to just 1%.
It has also recommended maintaining sales tax at one per cent, while proposing a complete exemption from federal excise duty, capital value tax, and withholding tax. The implementation of these measures is subject to approval by the International Monetary Fund (IMF).
Meanwhile, the government plans to discourage the use of conventional fuel-powered vehicles. Following the introduction of carbon-related charges on petrol and diesel, preparations have been completed to impose a carbon levy on vehicles that run on these fuels. The budget document proposes a levy ranging from 10 per cent to 19.5 per cent on vehicles with engine capacities exceeding 2,000cc.
In addition, the government is considering the phased introduction of tariffs on imported petrol and diesel vehicles. The proposed levy is expected to generate more than Rs142 billion in revenue over the next five years.
The government also intends to prioritise fully electric vehicles over hybrid models. As part of the new auto policy, a proposal is under consideration to maintain existing tax rates on hybrid vehicles rather than extending the new incentives being offered to electric vehicles.
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