The Ministry of Industries has opposed the International Monetary Fund’s proposal to impose an 18 percent General Sales Tax (GST) on electric vehicles, urging instead that a concessional 1 percent GST rate be introduced under Pakistan’s upcoming auto policy.
During talks with a visiting IMF mission, government officials shared key features of the new policy framework and proposed a reduced tax rate for New Energy Vehicles, including electric cars, buses, trucks, pickups, tractors, motorcycles, three-wheelers, and commercial vehicles.
Officials argued that hybrid vehicles already benefit from a lower GST rate of 8.5 percent and stressed that fully electric vehicles should receive even stronger incentives to encourage adoption and support Pakistan’s transition toward cleaner transportation.
The Ministry also highlighted existing tax distortions within the EV supply chain. According to officials, imported EV components currently face a 1 percent GST, while locally manufactured parts are taxed at 18 percent. The government has proposed extending the 1 percent GST rate across the entire EV value chain to avoid refund accumulation issues and create a level playing field for local manufacturers.
Discussions with the IMF also covered Pakistan’s commitments under the National Tariff Policy. The government has assured the IMF that the country’s weighted average applied tariff will be reduced from 10.6 percent in FY2025 to 7.4 percent by FY2030.
For the automobile sector, the tariff reduction plan aims to bring the weighted average tariff below 6 percent by 2030.
However, the Ministry of Industries expressed concerns over the pace of tariff liberalization, arguing that countries such as India and Bangladesh continue to maintain high import duties on vehicles to protect domestic industries.
Officials said the new auto policy is in its final stages and will be shared with the IMF before being presented to the federal cabinet for approval.
Separately, the proposed Motor Vehicle Development Act has been submitted to Parliament. The legislation seeks to grant statutory powers to the Engineering Development Board to enforce environmental and safety standards for locally manufactured and imported vehicles.
The government expects the bill to secure approval from the National Assembly before the end of June 2026, although coalition partners have reportedly raised concerns over certain provisions of the proposed law.
