Govt Keeps Small Car Tax Unchanged, Eyes Carbon Levy Instead

The federal government has decided not to increase the sales tax on motorcars with engine capacities of up to 850cc.

Sources confirmed that earlier instructions to raise the tax from 10–12.5% to 15–18% have been officially rejected during the final rounds of budget preparation.

This means that the existing concessionary tax regime on small cars will stay intact, at least for now.

It’s likely that entry number 72 of the Eighth Schedule of the Sales Tax Act, 1990, will remain untouched. This entry enables lower sales tax rates for locally manufactured or assembled cars under 850cc. It provides some stability for both manufacturers and budget-conscious consumers.

While the sales tax hike was rejected, the International Monetary Fund (IMF) is pushing for a carbon levy in the upcoming budget. This proposed levy would apply to petrol, diesel, and vehicles with internal combustion engines over 850cc.

According to the IMF, the move could help Pakistan generate at least Rs. 25 billion annually in revenue. Discussions on this matter are ongoing, and a final decision is expected by Monday or Tuesday next week.