KARACHI – The highly anticipated Budget for fiscal year 2025-26 finally gave a news of relief for the auto industry and buyers. The Government has decided not to hike locally assembled cars up to 850cc. Sources privy to the matter claim that proposals to hike sales tax up to 15-18% were rejected in the upcoming budget.
This decision by the government allows the concessional tax treatment under Entry No. 72 of the Eighth Schedule of the Sales Tax Act, 1990, to remain in effect. It aims to provide relief to the public who are looking to buy quality rides under 850cc. This decision will also support the automotive industry.
Discussions are ongoing with the International Monetary Fund (IMF), which has urged the nation to implement a carbon levy targeting petrol, diesel, and internal combustion engine vehicles with engines larger than 850cc. The IMF estimates that this levy could generate over Rs. 25 billion in annual revenue by discouraging fossil fuel consumption and promoting environmentally friendly alternatives. The government is expected to make a final decision on the carbon levy early next week as budget negotiations with the IMF continue.
The Budget for 2025-26 may introduce tax increases on large vehicles over 1,300cc, with higher withholding taxes proposed for high-end cars. To mitigate the impact of these changes, the government is considering relaxing import regulations for used cars that are up to five years old, which would provide more affordable alternatives. These modifications aim to simplify the tax system and increase government revenue, following a successful transition to value-based taxation in 2024.
