Key Takeaways
- The government has lowered the sales tax on locally manufactured hybrid electric vehicles (HEVs) with engine capacity up to 2000cc from 25% to 18%.
- The change was announced through a notification issued on September 13, 2026.
- The move aims to make HEVs more affordable for consumers.
The government has reduced the sales tax on locally manufactured hybrid electric vehicles (HEVs) with engine capacity up to 2000cc from 25% to 18%, effective immediately. This reduction was communicated through a notification issued on September 13, 2026, by the Finance Division.
According to the notification, the Federal Government has amended its previous sales-tax notification, S.R.O. 297(1)/2023, to include a new proviso that the provisions of Table-II shall not apply to locally manufactured HEVs with engine capacity up to 2000cc. This change is expected to make HEVs more accessible to the general public.
Previously, the sales tax on HEVs had fluctuated. It was initially set at 8-12% before the budget, and later increased to 25%. The new rate of 18% is a significant reduction and is aimed at promoting the adoption of HEVs in the country.
The decision to lower the sales tax on HEVs comes after a series of changes and proposals related to the General Sales Tax (GST) rates for electric vehicles (EVs) and HEVs. Initially, the approved EV policy set the GST on the sale of two- and three-wheeler electric vehicles at 1% for five years. Prior to June 13, 2025, HEVs benefited from a preferential GST rate of 8.5%, while fully electric vehicles (EVs) faced an 18% GST burden.
In the period leading up to the Budget 2025-26, there were reports suggesting a potential increase in GST on HEVs from 8.5% to 18%. MG Motors Pakistan advocated for reducing EV GST to 8.5% to match HEV rates. By June 10, 2026, it was reported that the government was considering imposing up to 25% sales tax on imported EVs in the upcoming budget.
The 1% sales tax rate for locally manufactured/assembled 4-wheel EVs (small cars/SUVs with battery capacities up to 50 kWh, and light commercial vehicles with up to 150 kWh) was set to expire on June 30, 2026. Similarly, the lower sales tax rate of 8.5% to 12.75% for locally manufactured HEVs was also slated to expire on the same date. However, following the expiry of the previous auto policy, sales tax and duty concessions for EVs and Range Extended Electric Vehicles (REEVs) were extended for another year, making their default GST position 1%.
The reduction in sales tax on HEVs is expected to encourage more consumers to opt for these vehicles, contributing to the government's efforts to promote sustainable transportation. Ali Khizar, Director of Research at Business Recorder, confirmed the development in a post on social media platform, stating, 'It used to be 8-12% before the budget and later 25%. Now it settles at 18%.'
This change is part of a broader strategy to support the adoption of electric and hybrid vehicles in Pakistan, aligning with global trends towards greener transportation solutions.
It used to be 8-12% before the budget and later 25%. Now it settles at 18%.
Ali Khizar, Director of Research at Business Recorder
