Pakistan Proposes New Sales Tax Rates for Electric, Hybrid and Petrol Cars

Pakistan’s proposed Auto Policy 2026–31 could change the sales tax paid on several categories of vehicles, with lower proposed rates for plug-in hybrid and certain petrol-powered cars, while range-extended electric vehicles would face a higher rate.

The draft policy distinguishes between battery electric vehicles (BEVs), range-extended electric vehicles (REEVs), plug-in hybrid electric vehicles (PHEVs), conventional hybrid electric vehicles (HEVs) and internal combustion engine (ICE) vehicles.

The proposals are intended to support the transition towards new-energy vehicles while revising the tax treatment of conventional cars. However, the rates should not yet be treated as final changes to the prices consumers pay.

Proposed Sales Tax Rates Under Auto Policy 2026–31

The following comparison reflects the current and proposed rates reported in coverage of the draft policy.

Important: These are draft-policy comparisons reported in the media. The final legal text, applicable vehicle classifications and effective dates will determine the rates ultimately applied.

Plug-In Hybrid Cars Could See a Major Tax Reduction

Under the reported proposal, plug-in hybrid vehicles would receive a 9% sales tax rate regardless of whether their engine capacity is below or above 2,000cc.

For PHEVs up to 2,000cc, the reported rate would fall from 18% to 9%. For those above 2,000cc, it would decrease from 25% to 9%.

That would represent a reduction of nine percentage points for the first category and 16 percentage points for the second.

A lower sales tax could reduce the tax component of a vehicle’s price. However, the final retail price would also depend on the manufacturer’s pricing, other taxes and duties, exchange rates, import costs and any applicable levies.

Petrol Cars Between 1,400cc and 2,000cc Could Also Benefit

The reported proposal would reduce the sales tax on conventional petrol vehicles with engine capacities from 1,400cc to 2,000cc from 25% to 18%.

Cars with engines up to 1,400cc would retain the reported 18% rate, while vehicles above 2,000cc would remain at 25%.

This distinction matters for buyers comparing vehicles across engine categories. A reduction in the sales tax rate does not automatically translate into an equivalent percentage reduction in the car’s final showroom price.

What Happens to Conventional Hybrid Cars?

Unlike plug-in hybrids, conventional hybrid electric vehicles would see no change under the reported sales tax comparison.

The proposed treatment retains the reported 18% rate for HEVs with engine capacities up to 2,000cc and 25% for those above that threshold.

Conventional hybrids generally combine a petrol engine with an electric motor and battery, but they are not designed to be charged from an external power source in the same way as plug-in hybrids.

The draft’s separate treatment of these technologies means buyers should not assume that all vehicles marketed as hybrids will receive the same tax concession.

Why Would Range-Extended Electric Vehicles Face a Higher Rate?

The proposed sales tax rate for range-extended electric vehicles would rise from 1% to 6%, according to the reported comparison.

REEVs use electric drive for propulsion and include an additional power source, typically a combustion engine, that can generate electricity to extend driving range. Their technical configuration differs from both fully battery-powered vehicles and conventional plug-in hybrids.

Although the proposed 6% rate would be higher than the reported existing 1% rate, it would remain below the proposed 9% rate for PHEVs.

The final policy’s definitions will be important because the vehicle’s technical classification can determine which tax category applies.

How the Proposed Changes Could Affect Car Buyers

If approved and implemented as reported, the changes could alter the relative tax burden across different powertrain technologies.

These effects are conditional on the draft becoming operative. The final impact will depend on the applicable tax base, other duties, any additional levies and the treatment of vehicles already booked or imported.

Has Pakistan Approved the New Sales Tax Rates?

The draft Auto Policy 2026–31 was reported to have received the prime minister’s in-principle approval in October 2026. Further formal approvals and implementation steps remain relevant before the proposed rates can be treated as final.

Consumers should therefore avoid assuming that a dealership must immediately apply the proposed rate or reduce a vehicle’s advertised price.

Before making a purchase decision, buyers should check the final government notification, the policy’s effective date and the tax breakdown provided by the manufacturer or authorised dealer.

What Buyers Should Watch Next

The most important next steps are the publication of the final policy, confirmation of the tax rates by the relevant authorities and clarification of how the changes will apply to locally assembled and imported vehicles.

Buyers should also look for official announcements from automakers before assuming that a model will become cheaper. Sales tax is only one component of the total vehicle price.

Editorial note: This article explains proposed rates reported in coverage of Pakistan’s draft Auto Policy 2026–31. The figures should be verified against the final policy and applicable Federal Board of Revenue notifications before being used to calculate a vehicle’s purchase price.