ISLAMABAD – The International Monetary Fund (IMF) has proposed changes to Pakistan’s tax structure that may impact the local auto industry. The global lender has urged Pakistan to remove sales tax exemptions for locally manufactured hybrid and electric vehicles and bikes.
Currently, hybrid vehicles enjoy reduced sales tax under the Eighth Schedule. Engines up to 1800cc are taxed at 8.5%, while engines between 1801cc and 2500cc are taxed at 12.75%. The IMF is recommending that these exemptions end and that a full 18% IMF tax be applied starting the next fiscal year.
The proposal was discussed with the Ministry of Industries and Production. IMF emphasized that hybrid and electric vehicles should be included in the standard tax regime. If implemented, this would remove the preferential tax treatment that has supported cleaner and energy-efficient transport in Pakistan.
Industry experts warn that applying the full IMF tax could increase prices of hybrid and electric vehicles substantially. Such a move may slow the growth of green vehicles and affect affordability for buyers. Consumers may have to pay more for eco-friendly transportation, potentially discouraging adoption of hybrids and EVs.
The local market for hybrids and electric vehicles has expanded due to tax incentives. Analysts say removing these benefits could reshape the industry, impact sales, and affect related investments. Many industry stakeholders are concerned about the timing, especially as the Eighth Schedule exemptions currently expire on June 30, 2026.
Government officials have not yet confirmed whether they will adopt the IMF’s recommendations. However, the discussions highlight the growing influence of international financial agreements on domestic policies. The proposal has sparked debate over balancing economic reforms with environmental priorities.
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As Pakistan navigates its fiscal challenges, the potential IMF tax could become a turning point for the country’s green vehicle sector. Policymakers must weigh the benefits of tax revenue against the need to support affordable and sustainable transportation.
