The Federal Government has officially exempted locally manufactured hybrid electric vehicles (HEVs) up to 2000cc from the heavy 25% sales tax. Consequently, the tax rate for these vehicles now settles at the standard 18%. The Finance Division implemented this change with immediate effect by issuing S.R.O. 1525(I)/2026, dated September 13, 2026.
The Legal Amendments
The Ministry of Finance and Revenue released the official notification yesterday. It directly amends previous tax regulations, specifically S.R.O. 297(I)/2023 and S.R.O. 370(I)/2024. The government inserted a new proviso after Table-II in the tax code. This new rule strictly states that Table-II provisions no longer apply to locally assembled or manufactured hybrid vehicles with engine capacities up to 2000cc. Furthermore, the official document, signed by Additional Finance Secretary Iftikhar Amjad, confirms these legal changes.
Previously, the original March 2023 S.R.O. imposed a 25% sales tax on imported and locally manufactured goods. The scope initially covered SUVs, CUVs, vehicles 1400cc and above, and 4×4 double cabin pickups. Later, a March 2024 amendment updated the criteria to target vehicles 1400cc and above, vehicles priced over Rs 4 million, and double cabin pickups. Now, thanks to the latest amendment, 2000cc hybrid vehicles escape the 25% tax net completely. They bypass the tax regardless of their invoice price or previous engine-capacity rules.
Industry Reactions to Sales Tax on HEVs & Historical Context
Experts noted that the General Sales Tax (GST) for PHEVs and HEVs ranged from 8% to 12% before the budget. The government then abruptly raised it to 25%, and now it finally settles at 18%.
Historically, Pakistan has frequently altered its tax policies for electric and hybrid vehicles. Initially, the approved EV policy offered a 1% GST on two- and three-wheelers for five years. Before June 13, 2025, HEVs enjoyed a preferential 8.5% rate, while PHEVs faced taxes between 8.5% and 12.5%. Conversely, fully electric vehicles (EVs) paid 18% GST during that time. By September 11, 2024, an Engineering Development Board (EDB) official warned that increasing the EV GST to 18% could ruin promotion efforts. This warning followed a Federal Board of Revenue (FBR) notice sent to an electric scooter maker regarding their 1% tax payments.
Recent EV & HEV Policy Shifts
Before the 2025-26 Budget, reports hinted at raising the HEV tax to 18%. At that time, MG Motors Pakistan demanded a reduced 8.5% GST for EVs to match HEV rates. On July 10, 2026, the previous auto policy officially expired. The government subsequently extended concessions for EVs and Range Extended Electric Vehicles (REEVs) for another year, holding their default GST at 1%. However, the lower GST policy for HEVs and PHEVs ended, pushing their tax up to 25% to align with traditional combustion engine vehicles.
Recently, on September 9, 2026, an inter-ministerial committee proposed a new auto policy for 2026-31. They suggested a 1% sales tax for Battery Electric Vehicles (BEVs), REEVs, and PHEVs. Meanwhile, they recommended taxing hybrids (HEVs) just like conventional cars. Ultimately, on September 12, 2026, the FBR formally extended the 1% reduced sales tax for specified EVs and exemptions on CKD kit imports until June 30, 2027.
