The Pakistan federal government has effectively raised the indirect tax burden on hybrid vehicles to around 25 percent after allowing a key sales tax concession to lapse under the Finance Act FY2026-27, which took effect on July 1, 2026.
High-level sources confirmed through official correspondence that the reduced sales tax rate of 1 to 2 percent on hybrid electric vehicles, available under a sunset clause in the previous fiscal year, was not extended in the new budget framework.
Before the budget was finalized, industry stakeholders and consumers had expected the concession to continue into the new fiscal year. However, the enacted law contains no provision to renew the reduced sales tax regime for hybrid vehicles.
As a result, imported hybrid cars are now subject to the cumulative impact of multiple indirect taxes. These include the withdrawal of the reduced sales tax as well as the continued application of federal excise duty on imported vehicles.
According to sources, the combined effect of these levies has pushed the overall indirect tax incidence on hybrid vehicles to approximately 25 percent.
The policy shift is expected to significantly increase the prices of imported hybrid cars in the domestic market. Analysts say the move reverses part of the tax incentive that had encouraged consumers to transition toward fuel-efficient and lower-emission vehicles amid rising fuel costs.
Industry observers warn that higher taxes on hybrids could slow adoption of cleaner automotive technologies at a time when Pakistan is seeking to reduce fuel imports and emissions from the transport sector.
While the government has not issued a formal explanation for ending the concession, the change reflects broader revenue-raising measures introduced in the FY2026-27 budget as authorities seek to manage fiscal pressures.
