ISLAMABAD: As Pakistan’s auto sector continues to struggle, the federal government has introduced a new tax on petrol and diesel vehicles as part of its budget 2025-26.
The levy, applicable to all internal combustion engine (ICE) vehicles, whether locally manufactured or imported, aims to raise revenue and encourage a shift towards cleaner transportation alternatives.
The newly introduced levy is calculated as a percentage of the total cost of a vehicle, with prices varying depending on engine capacity and the origin of the vehicle. It will be collected from manufacturers and importers but is expected to increase retail prices for consumers across the board.
| Engine | Taxes/Levy |
| Under 1300cc | 1% |
| 1300cc to 1800cc | 2% |
| Above 1800cc | 3% |
| All engine sizes | 1% |
Despite the limited revenue, experts believe it could lead to a big hike in prices of high-end or imported vehicles. Industry stakeholders expect the tax burden to be passed on to consumers, which could potentially impact vehicle sales in the short term.
Auto sector experts also point out that the move could pave the way for greater investment in hybrid and electric vehicle technologies in the future. However, they caution that without adequate EV infrastructure and incentives, the policy could initially depress an already stressed automotive market.
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