KARACHI – As Pakistan’s auto sector remains in dire straits, the federal government introduced a new tax on Petrol and diesel vehicles as part of its Budget 2025–26. The levy applicable to all internal combustion engine (ICE) vehicles, whether locally manufactured or imported, aimed at increasing revenue and encouraging a shift toward cleaner transportation alternatives.
The newly introduced levy is calculated as a percentage of the vehicle’s total price, with rates varying by engine capacity and origin of the vehicle. It will be collected from manufacturers and importers but is expected to raise retail prices for consumers across the board.
Breakdown of Cars in Pakistan
| Engine | Taxes/Levy |
| Under 1300cc | 1% |
| 1300cc to 1800cc | 2% |
| Above 1800cc | 3% |
| All engine sizes | 1% |
Despite limited levy, experts believe it could lead to big surge on higher-end or imported vehicles. Industry stakeholders expect tax burden will be passed on to consumers, potentially impacting vehicle sales in short term.
Auto sector experts also point out that this move could pave way for greater investment in hybrid and electric vehicle technologies in the future. However, they warn that without adequate EV infrastructure and incentives, the policy may initially strain an already pressured automotive market.
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