On June 10, 2025, Finance Minister Mohammad Aurangzeb presented the proposed Budget 2025-26 in national assembly with several amendments in taxes and duties on local and imported cars. With the government focusing on revenue generation, environmental sustainability, and reduced dependency on fossil fuels, the new budget introduces a range of taxes, levies, and policy reforms that directly impact both manufacturers and consumers.
Mr Aurangzeb proposed General Sales Tax (GST) from 12.5% to 18% on vehicles up to 850cc, introduction of new tax with name of ‘Climate Support Levy’ on all local and imported ICE and hybrid cars, Carbon Levy of Rs. 2.5 per liter on petrol, high-speed diesel, and furnace oil, reduction in RD, etc.
Here’s a comprehensive overview of what Budget 2025-26 brings for the Pakistani car industry.
Climate Support Levy – The New Tax
In a major policy change, the federal government has officially introduced a Climate Support Levy, previously named as New Energy Vehicle (NEV) adoption policy on internal combustion engine (ICE) vehicles and hybrid cars—targeting both locally assembled and imported cars depending on their engine capacity:
- 1% for vehicles up to 1300cc
- 2% for vehicles between 1301cc and 1800cc
- 3% for vehicles above 1800cc
The only exemptions from this tax are Electric Vehicles (EVs) and Plug-in Hybrid Electric Vehicles (PHEVs), as they fall under NEV category. This move is seen as a dual-purpose strategy: increase government revenues and push the market towards electric and alternative fuel vehicles.
To explore how this change affects the pricing of local and new imported cars, we’ve provided a detailed breakdown in a separate blog post.
GST Hike: 18% on Smaller Cars
The federal government has officially approved an increase in the General Sales Tax (GST) on vehicles with engine capacities up to 850cc, elevating it from 12.5% to 18%. This measure directly impacts Suzuki Alto and Suzuki Every, the most popular locally assembled new vehicles available in this segment in Pakistan.
To understand the implications of this change on the pricing of Alto and Every, we’ve covered it in a separate detailed blog post.
Carbon Levy on Fuel
Another major policy shift set to affect consumers is the introduction of a Carbon Levy on fossil fuels. This levy will apply to petrol, high-speed diesel (HSD), and furnace oil, leading to a direct increase in operational costs for all vehicle owners. The government has structured this levy to be implemented in phases: Rs. 2.5 per liter in FY 2025-26.
The primary aim of this measure is to discourage the consumption of fossil fuels and redirect funds toward the development of eco-friendly infrastructure.
Regulatory Duty, CD & ACD
A substantial shift has been announced in terms of import duties:
- Regulatory Duty (RD):
- Maximum rate slashed from 90% to 50%
- RD removed entirely from 554 PCT codes
- RD reduced on 559 PCT codes
- Additional Customs Duty (ACD):
- Also reduced on numerous tariff lines
- Long-Term Goal: Phased elimination of RD and ACD by 2030
While this is a welcome move for importers and might lower the cost of imported parts and vehicles, it could undermine local manufacturing, which has traditionally been protected through high import barriers.
The 2025-26 federal budget signals the beginning of a fundamental transformation in Pakistan’s automotive sector. While consumers may feel the pinch from higher car and fuel prices, the broader vision is aimed at reducing environmental impact and modernizing the transport sector.
