The International Monetary Fund (IMF) has sought the imposition of 18% general sales tax (GST) on electric vehicles, while Pakistan has proposed a reduced tax rate of just 1% to encourage the growth of new energy vehicles.
According to details, the talks between Pakistan and the IMF on the new fiscal year’s budget entered their final day on Wednesday, with both sides expected to reach consensus on key budget targets. The government shared the draft of the new Auto Policy 2026-31 with the IMF during the negotiations.
Officials informed the IMF that low taxation remained necessary for the promotion of environmentally friendly transport under the new policy framework. The draft policy places priority on the expansion of electric vehicles as part of broader efforts to modernise the auto sector.
Under the proposed policy, lower taxes would apply to three-wheel and four-wheel electric vehicles as well as electric motorcycles. Taxes would, however, apply to electric trucks, buses, pick-ups, double-cabin vehicles and tractors.
Authorities stated that the current average tariff on the auto sector stood at around 10.6%, with a proposal under consideration to reduce the rate to 6% by 2030.
The policy also seeks to strengthen local industry, increase exports and generate employment, while transforming the auto sector into a technology and export-oriented industry.
Official documents said that the automobile industry remained severely affected by the economic crisis between 2022 and 2024, as inflation and import restrictions led to a decline in vehicle production.
It has been said that the new policy sets a target of turning Pakistan into a global auto manufacturing hub by 2031.
