Proposed Tax Increase for Compact Vehicles Rejected by Senate

Just last week, Finance Minister Muhammad Aurangzeb took the stage in the National Assembly to unveil the budget for 2025-26. In a move that stirred quite a buzz, he proposed increasing the sales tax on small vehicles, even targeting cars with low engine sizes as low as 850cc. Additionally, he suggested increasing the sales tax on hybrid cars, those eco-friendly wheels up to 1800cc, jumping from 12.5% to 18%.

But hold onto your hats! There has been a twist in this story. The government has chosen to step back from its earlier plan to raise taxes on small cars and hybrids, which many argued posed a significant threat to our environment. It seems that common sense prevailed, at least for now, as they reconsider the impact of such a decision on daily drivers and the planet alike.

Tax Increment on 850cc Vehicles is Opposed by Senate

The Senate Standing Committee on Finance and Revenue, under the leadership of Senator Saleem Mandviwalla, held multiple meetings to review the Finance Bill 2025 and the proposed budget. During these discussions, committee members raised significant concerns about the previously planned increase in GST for small vehicles, including cars with the engine size of 850cc. 

Mandiwalla labeled the suggested 18% sales tax on a vehicle worth PKR 3 million as “unfair,” and many other senators agree with him. Some even proposed reducing the sales tax to a more reasonable rate of 14% or 15%.

Senator Shibli Faraz also pointed out the unfairness in the budget. He noted that while some regions were receiving tax breaks, owners of small cars were being hit with higher taxes. The committee’s strong objections led the government to withdraw its plan to raise the sales tax on small vehicles and hybrid cars.

Govt. Retreats on Hybrid Tax Hike After Senate Backlash

Great news for hybrid car owners and new buyers! The government has decided not to raise the sales tax on hybrid cars. Instead of jumping to 18%, the tax will stay at the current, lower rate of 12.5%. This is a big change from their earlier plan.

This decision means the government will miss out on collecting about Rs7 billion in extra tax money. It comes after the government tried to increase the tax earlier this year but backed down. They changed their mind before the National Assembly approved the final budget. Why the change? The current auto policy actually blocks any tax increase on hybrids before June 2026.

This situation shows the government’s tricky balancing act. They wanted to raise money through higher taxes, but the Senate pushed back hard. It highlights the struggle between finding funds and keeping the public happy. For now, the future of similar tax ideas is unclear. But one thing is certain: car owners can relax knowing their hybrid car taxes won’t be going up anytime soon.

What are your thoughts on the new taxes and Budget 2025–26? Will it change the dynamics of the automobile industry/sector in Pakistan? Rising fuel costs and new levies could affect your daily commute, but there is good news as well. The Senate reversed the proposed tax summary. Stay informed with Wise Wheels, your go-to source for helpful updates that matter. Don’t miss out on our premium services like auction sheet verification, in-depth car inspections, and a smart car finance calculator designed to make your car decisions easier. For trusted insights and expert auto services, visit Wise Wheels Pakistan today and stay one step ahead!