Big changes are on the horizon for Pakistan’s auto industry. The Federal Board of Revenue (FBR) has proposed a hike in Withholding Tax (WHT) rates on vehicles with engine capacities above 1,300cc, as part of the federal budget for fiscal year 2025-26. This move is aimed at boosting government revenue, especially after the FBR managed to collect over Rs4 billion in vehicle WHT last year.
Higher WHT on Bigger Cars
Right now, WHT is charged based on engine size—starting from 2% for 1,300cc to 1,600cc cars and going up to 12% for vehicles above 3,000cc. The new proposal would raise these rates even further across all brackets, making car ownership, particularly of larger vehicles, more expensive.
This comes on the back of a 2024 tax policy change where the government shifted from fixed taxes to a value-based model, linking tax to the vehicle’s price rather than engine size alone.
But taxes aren’t the only shake-up in the works.
IMF Pressures Push for Industry Reform
The International Monetary Fund (IMF) is pressing Pakistan to revamp its auto sector. The IMF argues that protective tariffs and duties make locally assembled cars too expensive—more than 40% of a car’s price is taxes. Some imported auto parts face protection rates nearing 98%, essentially doubling their cost.
The IMF wants these barriers lowered to encourage competition, improve vehicle quality, and make cars more affordable. In response, the government has unveiled the National Tariff Policy 2025–30. Key highlights include:
- Higher duties on used car imports starting FY26, gradually reducing to match new cars by 2030.
- Phasing out Additional Customs Duties (ACDs) and slashing Regulatory Duties (RDs) by up to 80%.
- A drop in the average auto sector tariff rate to under 6% by FY30.
- Removal of import limits on cars under five years old by early FY26.
- A shift from age-based to environmental and safety-based import rules starting mid-2026.
Also, the current AIDEP 2021–26 policy, which supports local carmakers, will be phased out in favor of a new policy that focuses on climate and safety compliance.
While these changes may pinch car buyers in the short term, they aim to create a more open, competitive, and consumer-friendly market in the long run.
