Pakistan to hike luxury car taxes, spares hybrids

ISLAMABAD: Pakistan is set to sharply raise withholding taxes on high-end vehicles in its FY2025-26 budget, expanding levies to cars as small as 1300cc as it chases billions in fresh revenue to meet IMF demands, according to officials familiar with the plan.

The Federal Board of Revenue has proposed raising tax rates across the board: vehicles between 1300cc–1600cc will see a jump from 2% to 3% of value, while the top slab — cars above 3000cc — will face a 16% levy, up from 12%. The revised regime, already shared with the International Monetary Fund, builds on last year’s shift to a value-based tax model targeting vehicles above 2000cc.

The move aims to tap deeper into Pakistan’s affluent auto market, which contributed over four billion rupees in withholding taxes this year. By pulling smaller engine brackets into the “luxury” net, Islamabad hopes to significantly boost collections without sparking a political backlash. At the same time, the government is keeping one hand off the wheel when it comes to cleaner tech. Authorities have extended reduced sales tax rates for locally assembled hybrid electric vehicles (HEVs) through June 2026 — 8.5% for models up to 1800cc and 12.75% for those up to 2500cc — avoiding a full pivot to battery electric vehicles (BEVs). The hybrid reprieve follows demand from the Japan Chamber of Commerce and Industry, which recently urged Pakistan to favor hybrids — a segment dominated by Japanese automakers — over a rushed transition to EVs. The Prime Minister’s Office has asked ministries to review the request and present policy options.