The prices of locally manufactured vehicles are expected to rise significantly as the federal government is reportedly preparing to impose a uniform 18% sales tax on cars with engine capacities up to 850cc in the upcoming 2025–26 federal budget.
According to a report by the All-Pakistan Gems and Jewelers Sarafa Association, these small-engine vehicles are currently subject to a concessional sales tax rate of 12.5%. However, the government has agreed in principle to increase this rate to between 15% and 18% as part of broader fiscal reforms aimed at phasing out tax exemptions and boosting revenue.
This policy shift will lead to higher prices for entry-level cars, which are favored for their affordability and fuel efficiency. The increase is expected to disproportionately impact middle- and lower-income consumers who rely on models in the 660cc to 850cc range.
In addition to the proposed sales tax hike, the Federal Board of Revenue (FBR) is also considering increasing the rate of Withholding Tax (WHT) on vehicles with engine capacities above 1,300cc. At present, WHT ranges from 2% to 12%, depending on engine size. The proposed revisions aim to raise these rates further, adding to the overall cost of vehicle ownership in Pakistan.
