Stakeholders Urge Rationalisation of 25% Sales Tax on Cars
Pakistan’s auto industry is anticipating a reduction in the sales tax slab from 25% to 18% in the upcoming auto policy, a move stakeholders believe could revive demand and restore market balance. Indus Motor Company, during its FY26 analyst briefing, suggested that the government may rationalise the tax structure, which has been a major factor in suppressing demand amid inflation, currency depreciation, and high interest rates. Industry experts argue that the current 25% tax on higher-end vehicles has distorted the market and discouraged consumers.
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Former PAAPAM chairman Abdul Rehman Aizaz criticised the tax hike as unjustified, stressing that it burdens consumers rather than manufacturers. He highlighted the disparity between conventional internal combustion engine (ICE) vehicles taxed at 25% and electric vehicles (EVs) that enjoy much lower rates, sometimes as low as 1%. He warned that such policies risk undermining local manufacturers who have invested heavily in localisation and employment, while imported EVs assembled from semi-knocked-down kits flood the market without contributing to domestic industry development.
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Other experts, including EDB’s Asim Ayaz and Shafiq Ahmed Shaikh, echoed concerns that excessive taxation suppresses demand and slows industrial growth. While the government aimed to generate Rs4.5 billion annually through the higher tax, the auto sector has already faced severe contraction, with sales plunging by over 60% in late 2023. Analysts argue that reducing taxes could boost volumes and ultimately raise revenue. However, some believe the current tax structure may persist in the near term, supported by bank financing schemes and government incentives to sustain consumer purchases.
