The federal government has withdrawn its plan to raise the sales tax on hybrid cars up to 1800cc. It will keep the current 12.5% rate instead of increasing it to 18%, as originally suggested in the finance bill. Officials say this change could cost the government about Rs7 billion in revenue.
This is the second time in a year the government has reversed a decision on hybrid vehicle taxes. According to the FBR chairman, the hike was mentioned during the budget speech, but the policy won’t allow a tax increase before June 2026. He confirmed the sales tax on hybrid vehicles would stay unchanged as per the auto policy.
However, the government has decided to go ahead with a tax increase on small cars up to 850cc. These cars, usually bought by middle-income families, will now face an 18% sales tax instead of the previous 12.5%. The FBR chairman argued that buyers of Rs3 million cars could afford the extra tax.
Critics say this move could make small cars too expensive while giving an edge to luxury vehicles. PTI MNA Usama Mela said the decision would hurt affordability for regular citizens and benefit SUV buyers. Many are worried that this change is unfair and could widen the gap between income groups.
Automakers also raised concerns. Pak Suzuki warned that higher taxes would reduce sales and affect jobs in the auto sector. Its MD said a higher GST would slow down growth and make cars even less affordable. Government officials, however, promised to support the industry and listen to its challenges.