The federal government is considering a proposal to reduce Tax on locally assembled vehicles with engine capacities of up to 800cc. The proposal is currently under discussion with the International Monetary Fund (IMF) as part of Pakistan’s upcoming automobile policy.
According to reports, the government has proposed lowering the sales Tax on these small vehicles from 18 percent to 12.5 percent. Officials believe the move could make entry-level cars more affordable for consumers while supporting the country’s automobile industry.
The proposal is still under review, and discussions with the IMF are continuing. Reports indicate that the IMF initially expressed concerns about the planned Tax reduction. However, consultations between both sides are ongoing before the policy receives final approval.
Prime Minister Shehbaz Sharif has directed the relevant authorities to prepare an investor-friendly automobile policy. The government wants the new framework to attract fresh investment, expand manufacturing, and create more employment opportunities in Pakistan’s automotive sector.
Officials say the upcoming policy will not only focus on affordability but also on improving the overall competitiveness of the local automobile industry. The government plans to introduce internationally recognized vehicle safety standards to improve the quality of locally assembled vehicles.
Under the proposed framework, Pakistan aims to align locally manufactured and imported vehicles with 62 international safety regulations based on United Nations guidelines. Authorities believe these measures will strengthen consumer protection and help improve industry standards.
The policy is also expected to encourage the adoption of environmentally friendly vehicles. Reports suggest that special incentives may be introduced for electric vehicles (EVs), hybrid electric vehicles (HEVs), and plug-in hybrid electric vehicles (PHEVs). These measures are intended to support cleaner transportation and reduce carbon emissions.
In addition to the proposed reduction in sales Tax for small vehicles, the government is reportedly considering a carbon tax on engines used in locally manufactured petrol and hybrid vehicles. The proposal is part of broader efforts to promote sustainable transportation while balancing environmental concerns.
Industry experts believe that reducing taxes on smaller vehicles could increase demand in the entry-level car segment. Lower prices may encourage more buyers to purchase locally assembled vehicles, which could also benefit manufacturers and related industries.
The automobile sector plays an important role in Pakistan’s economy by supporting thousands of jobs and contributing to industrial growth. Government officials hope the new policy will encourage both domestic and foreign investors to expand their presence in the country’s automotive market.
The proposed automobile policy is expected to be announced in August after consultations with all stakeholders are completed. These discussions include meetings with the IMF, industry representatives, and other relevant government departments.
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If approved, the new policy could introduce significant changes to Pakistan’s automotive sector by reducing Tax on small cars, improving safety standards, encouraging investment, and supporting the transition toward cleaner vehicle technologies. Officials believe these reforms could help strengthen the industry while making vehicles more accessible to consumers.
