ISLAMABAD: In a sweeping fiscal overhaul announced in the Federal Budget 2025–26, the government has taken major steps to rationalize the tax structure and promote environmentally friendly transportation, while also intensifying its crackdown on unregistered businesses.
One of the key tax measures is the imposition of a uniform 18% sales tax on all small vehicles up to 850cc, ending previous exemptions and lower tax rates for this category. The decision, aimed at streamlining the tax regime, will apply uniformly to petrol, diesel, and hybrid cars, potentially raising vehicle prices in the entry-level segment, making it all the more difficult for the middle class citizen to buy cars.
In an almost parallel effort to push Pakistan towards cleaner mobility, the government has introduced the New Energy Vehicles Adoption Levy Act, 2025. This new law imposes a levy on all internal combustion engine (ICE) vehicles—powered by petrol, diesel, CNG, or LPG—whether imported or manufactured locally. The levy is intended to discourage the use of fossil fuel vehicles and promote the adoption of electric and other zero-emission alternatives.
“This is a green budget,” a senior Finance Ministry official stated. “The levy on ICE vehicles reflects our commitment to climate goals and reducing dependence on fossil fuels.”
The levy will be collected like customs duty for imports and sales tax for locally produced vehicles. However, exemptions apply to new energy vehicles (NEVs), export-bound vehicles, and those used by diplomatic or international organizations. The Federal Government also retains the authority to adjust levy rates or exempt specific categories in the future.
Revenue from this levy will be directed towards building EV infrastructure, offering adoption incentives, and running clean transport awareness campaigns.
The budget also includes stricter enforcement measures against tax evasion, particularly targeting unregistered businesses. Authorities have vowed to impose severe penalties to ensure compliance and widen the tax net.
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