The Pakistani government is planning to increase the sales tax on small, locally manufactured cars in the upcoming 2025–26 budget. Currently, small cars with engine sizes up to 850cc are taxed at 12.5%. However, the new proposal aims to raise this tax to 18%. If approved, this increase will make these entry-level cars even more expensive for the average person.
At the moment, even the most basic small cars in Pakistan start at around Rs2.8 million. If the sales tax goes up, the prices will rise even further, putting more financial pressure on people who are already struggling to afford a new vehicle.
In addition to the sales tax hike, the government is also considering increasing the Withholding Tax on cars with engine sizes above 1,300cc. This means that buyers of larger vehicles may also have to pay more when purchasing a new car.
On the other hand, there may be a small ray of hope for people looking to buy used vehicles. The government is reportedly reviewing the import rules for second-hand cars. If the rules are relaxed, Pakistan may allow the import of used cars that are up to five years old instead of the current limit. This could make imported used cars more accessible and slightly more affordable for consumers.
These changes are part of the government’s broader strategy to increase revenue through higher taxes. However, experts warn that such tax hikes will likely make car ownership even more difficult for ordinary citizens. Many Pakistanis are already struggling with rising inflation and high costs of living, and increasing the prices of vehicles could make it harder for them to own or replace a car.
While the government aims to meet its financial goals, these tax measures may reduce the affordability of vehicles and impact the auto industry’s overall growth and consumer demand.
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