ISLAMABAD: The government is set to review tax concessions for hybrid and plug-in hybrid vehicles under the new energy vehicle framework in the upcoming budget, a move that could alter pricing and demand in Pakistan’s auto sector, according to a report by The Express Tribune.
Industry participants say tax policy has remained the primary driver of investment, model launches and consumer demand in the automobile market. Changes in fiscal structure have historically influenced the direction of growth and product mix.
The sector expanded significantly under the Automotive Development Policy 2016–2021, which reduced duties on non-localised parts to around 10% and on localised parts to about 25%. The policy also offered a five-year tariff protection window to new entrants, attracting investment from multiple global automakers.
Estimates indicate that around 15 new players committed investments of approximately $1.169 billion, with over $1 billion realised through assembly plants, dealerships and vendor networks. Passenger car sales increased from about 181,000 units in FY16 to over 216,000 units in FY18, later reaching around 234,000 units in FY22.
The subsequent Automotive Industry Development and Export Policy 2021–2026 shifted focus toward exports, technology and sustainability. Under this framework, duties were reduced to 4% for hybrid parts, 3% for plug-in hybrid components and 1% for electric vehicle parts, while sales tax on hybrids and plug-in hybrids was set at 8.5%.
This tax structure supported the introduction of hybrid models by maintaining a price advantage over conventional vehicles. Industry representatives say this differential has been central to consumer adoption in a price-sensitive market.
Pakistan’s broader electrification strategy is guided by the National Electric Vehicle Policy, which targets 30% of passenger vehicle sales to be electric by 2030. Electric vehicles currently benefit from a 1% sales tax along with reduced duties on related infrastructure.
Proposals under consideration include increasing the sales tax on hybrid and plug-in hybrid vehicles to 18%. Analysts say such a change could shift demand patterns, as pricing remains a key factor in vehicle purchase decisions.
The upcoming budget will determine whether the current tax structure is retained or revised, with implications for investment, product strategy and the pace of transition toward electrified vehicles.
