Beginning July 1, 2025, owners and buyers of locally manufactured or assembled cars with engine capacities up to 850cc can expect a notable increase in prices due to a planned hike in sales tax.
The government has agreed in principle to raise the sales tax rate from the existing 12.5 percent to a higher range between 15 and 18 percent in the upcoming budget.
This increase targets the concessionary tax regime that currently benefits smaller vehicles, making them more affordable for many consumers.
The proposed Finance Bill for the fiscal year 2025-26 includes a key change that will remove entry number 72 from the Eighth Schedule of the Sales Tax Act 1990, which presently grants the reduced tax rate to these locally assembled or manufactured motorcars.
By deleting this entry, the government intends to standardize the sales tax, thereby ending the special tax concession for cars with engines up to 850cc.
This move is expected to impact the affordability of these vehicles and could potentially slow down demand, while also generating additional revenue for the government.
The decision reflects a broader effort to reform tax policies and increase fiscal resources, but it may also raise concerns among consumers and industry stakeholders who benefit from the current lower tax rate.
Overall, the tax adjustment marks a significant shift in the automotive sector’s pricing landscape in Pakistan starting mid-2025.