Govt Withdraws 25% Sales Tax on Hybrid Vehicles

The federal government has withdrawn proposal to impose 25 percent sales tax on hybrid electric vehicles (HEVs) in Finance Bill 2024. The existing tax rate of 8.5 percent will continue on HEVs after strong opposition by the Ministry of Industries and Production for scrapping the 25 percent sales tax rate. The Engineering Development Board (EDB) and Ministry of Industries had requested the Finance Division and the Federal Board of Revenue (FBR) to restore the 8.5 percent sales tax, arguing that the 25 percent tax contradicted commitments made in the Auto Industry Development and Export Policy (AIDEP) 2021-26. The government previously charged 8.5 percent sales tax on hybrid vehicles compared to the proposed 25 percent, which roughly translated into a tax concession of Rs. 1.5-2.2 million per vehicle. Customs duty concessions on hybrid parts amount to nearly Rs. 1 million, bringing the total concession to almost Rs. 3 million per car. Despite these concessions, hybrid vehicles remain expensive, with prices ranging from Rs. 10 million to at least Rs. 15 million. FBR wants the sales tax concession for HEVs withdrawn, arguing that wealthy customers can afford the tax. They suggest that the government should not provide further subsidies to the privileged class.