The federal government is considering imposing a carbon levy of up to 19.5 percent on vehicles above 2,000cc as part of Budget 2026-27, while simultaneously offering significant tax incentives to accelerate the adoption of electric vehicles (EVs) across Pakistan.
The proposal is part of a broader strategy aimed at reducing fuel consumption, lowering carbon emissions, and promoting a transition toward cleaner transportation.
According to officials, the proposed carbon levy would apply to larger engine vehicles that consume more fuel and contribute higher emissions. The measure is expected to discourage the use of fuel-intensive transport while generating additional government revenue.
Major Incentives Planned for Electric Vehicles
To support the shift toward electric mobility, the government is also reviewing a package of incentives for locally manufactured EVs.
Key proposals include:
- Reduction of customs duty on EV batteries, electric motors, and related components to as low as 1 percent
- Maintenance of 1 percent sales tax on EV parts
- Possible exemptions from Federal Excise Duty (FED)
- Relief from Capital Value Tax (CVT)
- Exemption from selected withholding taxes
Officials believe these measures could significantly reduce the upfront cost of electric vehicles and encourage both consumers and investors to enter the EV market.
Hybrids May Miss Out on Tax Benefits
Sources indicate that hybrid vehicles may not receive the same level of incentives, as policymakers appear to be focusing on full electric mobility under Pakistan’s long-term transport and climate strategy.
The proposals are currently being reviewed by a high-level committee headed by Deputy Prime Minister and Foreign Minister Ishaq Dar before a final decision is made in the federal budget.
Part of Pakistan’s EV Transition Strategy
The proposed measures align with the government’s broader New Energy Vehicle (NEV) policy, which seeks to increase the share of electric vehicles in Pakistan’s transport sector, reduce dependence on imported fuels, and support environmental sustainability goals.
Officials estimate that the carbon levy on large vehicles could generate more than Rs. 1.42 billion over the next five years while helping steer consumers toward cleaner transportation alternatives.
