The Pakistan federal Budget 2025-26, presented on June 10, 2025, marks a transformative moment for the automotive industry. Against the backdrop of IMF-mandated economic reforms, this budget ushers in sweeping shifts—from greener taxation and fuel duties to liberalized vehicle import policies—aimed at boosting revenue, boosting sustainability and modernizing the sector.
Get More Updates: Local Car Prices May Increase Up To Rs. 600,000
Measures Impacting Auto Sector
1. General Sales Tax (GST) Increase
- GST on vehicles up to 850 cc was raised from 12.5 % to 18 %, significantly affecting entry-level models like the Suzuki Alto.
2. Climate/Green Tax on ICE Vehicles
- Introduced a Climate Support Levy, based on engine size:
- 1 % for ≤ 1300 cc
- 2 % for 1301–1800 cc
- 3 % for > 1800 cc
- Applies to both locally assembled and imported internal-combustion-engine (ICE) and hybrid vehicles; EVs and plug-in hybrids are exempt.
3. Carbon Levy on Fuel
- An environmental levy of PKR 2.5/liter on petrol, HSD, and furnace oil in FY 2025–26 (set to increase to PKR 5/liter in FY 2026–27).
4. Reduced Regulatory Duties (RD) on Large Cars
- RD on vehicles above 3000 cc reduced from 90 % to 50 %, with planned gradual alignment of import duties toward international norms (possibly decreasing 20 % → 15 % over five years).
5. EV & E‑Bike Incentives in Budget 2025-26
- Allocation of around PKR 20 billion in subsidies for electric vehicles, particularly two-wheelers.
- Additional incentives include tax cuts, lower import duties on EV components, and waived registration fees (e.g., in Islamabad) for EVs. VW → EV fund financed by ICE levy.
6. Used Vehicle & Import Tariff Reforms
- Plans to allow commercial import of used vehicles up to five years old, starting July 2025, with a 40 % regulatory duty (reducing to 30 % in 2026, 20 % in 2027, 10 % in 2028, and fully phased out by 2029).
Budget 2025-26 Summary Table
| Measure | Details & Timeline |
|---|---|
| GST hike | 12.5 % → 18 % on ≤850 cc cars |
| Climate Support Levy | 1 %–3 % on ICE/hybrid, tiered by cc |
| Carbon Fuel Levy | PKR 2.5/l (FY25–26); PKR 5/l (FY26–27) |
| RD cuts | ≥3000 cc cars: 90 % → 50 % now; tariffs to align over next 5 years |
| EV/E‑bike subsidies | PKR 20 bn allocated |
| Used import RD schedule | 40 % → phased to 0 % by July 2029 |
Budget 2025-26 Implementation:
- Consumers: Prices for small cars will rise due to combined taxes (GST + levy). Fuel costs are higher too.
- Manufacturers & Importers: Potential decline in demand for ICE vehicles; long-term gains possible from RD cuts and EV policy support.
- EV Sector: Incentive structure aims to stimulate EV sales and production with dedicated funds and easier import duties.
- Used Car Market: Opening and gradual tariff reduction could enhance availability and affordability of used vehicles.
Final Verdict
Pakistan’s FY 2025–26 auto budget decisively shifts toward revenue, raising and environmental goals, raising taxes on ICE vehicles and fuel. While strategically incentivizing EV adoption. At the same time, phased tariff liberalization for imports and used vehicles aims for smoother integration with global markets.
