ISLAMABAD, Jul 10 (Alliance News): The federal government is consulting the International Monetary Fund (IMF) on a proposal to reduce the sales tax on locally assembled 800cc cars from 18 percent to 12.5 percent under Pakistan’s upcoming auto policy, sources said on Friday.
According to sources, the IMF initially opposed the proposed tax reduction, but discussions between the government and the lender are continuing before the policy is finalised.
Prime Minister Shehbaz Sharif has directed the relevant authorities to make the new auto policy more investor-friendly to attract fresh investment, create employment opportunities and strengthen Pakistan’s automobile industry.
The proposed policy also aims to improve the competitiveness of the local auto sector by adopting internationally recognised vehicle safety standards.
Officials said consultations with the IMF on the proposed tax incentives will continue before the government finalises the policy, which is expected to be unveiled in August 2026.
The new auto policy is also expected to include incentives for electric vehicles (EVs), hybrid vehicles and plug-in hybrid electric vehicles (PHEVs). It also proposes introducing a carbon tax on the engines of locally manufactured petrol and hybrid vehicles.
In line with United Nations regulations, the policy seeks to ensure compliance with 62 internationally recognised vehicle safety standards for both locally manufactured and imported vehicles.
The proposed policy is being reviewed in consultation with the Federal Board of Revenue (FBR), the Ministry of Science and Technology, the Ministry of Commerce, and the Ministry of Law.
After inter-ministerial consultations are completed, the draft policy will be presented to the Cabinet’s Economic Coordination Committee (ECC) for approval.
Meanwhile, hybrid vehicles assembled in Pakistan have become more expensive after the government increased the sales tax on hybrid vehicles from 8.5 percent to 18 percent, effective from July 1, 2026, under the Finance Act 2026. The same 18 percent sales tax now also applies to imported and locally assembled plug-in hybrid vehicles.
