Good News for Car Buyers: No Sales Tax Hike on Small Cars

The federal government has decided not to raise the sales tax on small cars that are made or assembled locally. This decision applies specifically to vehicles with an engine size of up to 850cc, according to senior officials who shared this update with ProPakistani.

Earlier, there were plans to increase the sales tax on these small cars from the current rate of 10 to 12.5 percent up to 15 to 18 percent. However, sources have confirmed that the government has now rejected those plans. This means that car buyers and manufacturers of small, fuel-efficient vehicles can breathe a sigh of relief, as prices are likely to remain stable—at least for now.

There is also a strong possibility that the Federal Board of Revenue (FBR) will decide not to remove Entry Number 72 from the Eighth Schedule of the Sales Tax Act, 1990. This specific entry is important because it allows small locally manufactured or assembled cars to enjoy lower sales tax rates. If it remains in place, the special tax relief will continue for these vehicles, which helps to keep them more affordable for everyday consumers.

On another note, the International Monetary Fund (IMF) has made a separate suggestion to the Pakistani government. The IMF wants Pakistan to introduce a carbon levy in the new federal budget. This carbon levy would apply to petrol, diesel, and vehicles with internal combustion engines that are larger than 850cc. The IMF’s goal is to help Pakistan raise more revenue while also encouraging people to use cleaner energy sources.

This proposal from the IMF is still under discussion, but officials are expected to make a final decision by Monday or Tuesday next week. If approved, this carbon tax could bring in at least Rs. 25 billion every year, according to IMF estimates. The revenue would come from taxing fuels like petrol and diesel, as well as larger vehicles that use traditional engines. It’s part of a broader effort to fight climate change, reduce pollution, and help Pakistan meet its financial goals.

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