New auto policy: 1% EV tax to 2031, IMF's 18% rejected, up to 10% levy on big cars

Pakistan's new auto policy keeps the sales tax on battery electric cars at 1% until 2031 and turns down the IMF's proposal to raise it to 18%, ARY News reported on Tuesday 20 October, citing the policy document. The same draft, approved by Prime Minister Shehbaz Sharif, adds a new Automotive Development Levy of up to 10% on petrol and diesel cars above 2,000cc, ProPakistani reported, citing sources.

The levy still needs a law: the policy targets legislation by December 2026, and the effective date and the price it is charged on have not been announced.

The proposed car levy, by vehicle

The levy applies to internal combustion engine vehicles, both imported and locally assembled, according to ProPakistani. ARY puts the expected yield at more than Rs 232 billion over five years, to be spent on export incentives and on upgrading local parts makers.

What it could mean in rupees: if the levy is charged on the ex-factory price (not yet confirmed), a 1,300cc car priced at Rs 5 million would carry about Rs 100,000 more, and a 2,400cc SUV at Rs 15 million about Rs 1.5 million more. An 800cc or 1,000cc hatchback would carry nothing. Our car loan calculator shows what such a change does to a monthly instalment, and the car registration tax calculator the tax you already pay at registration.

Electric cars: tax rates to 2031

• Battery electric vehicles: 1% sales tax from 2026 to 2031.
• Range-extended EVs: 6%.
• Plug-in hybrids: 9%.
• Luxury EVs: a 10% federal excise duty on electric vehicles worth more than $75,000 (about Rs 20.8 million at today's dollar rate).
• Import duty: cut in phases, with lower tariffs for small EVs under $15,000.
• Financing: the EV loan limit rises from Rs 3 million to Rs 10 million, and the longest term from three to five years.

Exports, local parts and safety

The policy sets a target of $6 billion in vehicle exports and $1.2 billion in auto parts exports by 2030-31, according to ARY. Carmakers get mandatory export targets: those that meet them earn 5% of export value back, plus 10% on exports above the previous year. A maker that misses its target two years running could lose its manufacturing certificate.

Other measures in the document:

• Tariffs across the auto sector cut to 15% by 2030-31.
• A new Pakistan Automotive Testing Institute for certification and audits.
• Global safety standards for both local and imported cars.
• Consumer protection clauses in every sale agreement, and two audits a year of incentive payments.

What to do if you are buying a car

Nothing changes at the showroom today: the levy needs legislation, and no notification has been issued. If you are choosing between a 1,300cc and a 2,000cc-plus model for delivery in 2027, the gap could widen once the law passes. We will update this story when the Ministry of Industries publishes the final policy.