ISLAMABAD: Pakistan’s new auto policy is expected to introduce significant changes to taxes and levies, including a proposed 1% sales tax on electric vehicles (EVs) valued at up to $75,000 and new charges on petrol-powered vehicles.
According to sources, the proposed measures could provide Rs85 billion in sales tax relief for electric vehicles, with an alternative plan intended to generate an equivalent amount in tax revenue.
Under the proposal, the sales tax on electric vehicles priced at up to $75,000 could be reduced to 1%. Sources estimate that the measure would provide tax relief worth Rs85 billion.
However, the International Monetary Fund (IMF) has reportedly called for the sales tax on electric vehicles to be increased from 1% to 18%. The proposed relief and other changes under the new auto policy will therefore require the lender’s approval.
The government is considering an alternative revenue plan to offset the Rs85 billion relief while incorporating additional taxes and levies into the policy.
New automotive development levy
Amendments to the Finance Bill may be introduced to provide for a Federal Excise Duty (FED) and an Automotive Development Levy, according to sources.
Under the proposal, vehicles with engine capacities ranging from 1,001cc to 2,000cc could face an Automotive Development Levy of 2%. Vehicles with engine capacities of 2,001cc and above may be subject to a 10% levy.
The Automotive Development Levy is expected to apply to all petrol-engine vehicles, whether manufactured locally or imported.
The proposed policy may also introduce a 10% Federal Excise Duty on electric vehicles valued at more than Rs20 million.
The measure would add a tax on higher-priced EVs even as the policy considers sales tax relief for electric vehicles costing up to $75,000.
Carbon levy on petrol, diesel, conventional vehicles
The new auto policy is also expected to include a carbon levy on petrol, diesel and internal combustion engine (ICE) vehicles.
According to sources, the carbon levy on petrol, diesel and ICE vehicles could generate Rs25 billion in revenue. Another estimate in the proposals puts the potential yield from levies on petrol, diesel and ICE vehicles at Rs37 billion.
The figures have been reported as part of the proposed revenue measures, although the precise relationship between the two estimates has not been clarified.
Levies on buses, trucks
The government is also considering an Automotive Development Levy on buses and trucks, which is expected to generate Rs45 billion in revenue.
Together, the proposed measures form part of an alternative plan intended to balance the Rs85 billion in potential sales tax relief for electric vehicles with additional revenue from vehicle-related taxes and levies.
The proposals remain subject to further consideration and IMF approval before they can be incorporated into the new auto policy.
