ISLAMABAD: The International Monetary Fund (IMF) continues to introduce new demands tied to Pakistan’s $7 billion loan program, raising concerns over their potential impact on the country’s growing electric and hybrid vehicle sector.
Sources indicate that the IMF has proposed eliminating sales tax exemptions for locally manufactured electric vehicles and electric bikes. This proposal includes implementing the standard 18% General Sales Tax (GST) starting from the fiscal year 2026–27.
Looming changes for hybrid vehicles
In addition to electric vehicles, the IMF has reportedly called for removing tax exemptions on locally manufactured hybrid electric vehicles. Presently, these vehicles benefit from special tax incentives designed to promote cleaner transportation.
As it stands, locally manufactured hybrid vehicles are fully exempt from taxes until June 30, 2026. Following this period, hybrid vehicles with engine capacities up to 1,800cc are subject to an 8.5% sales tax, while those with capacities up to 2,500cc are taxed at 12.75%.
Shift to a standard tax framework
Discussions between the IMF and Pakistan’s Ministry of Industries and Production have highlighted the lender’s push to end these exemptions. The IMF has suggested removing sales tax relief from the Eighth Schedule of the Sales Tax Act and transitioning these vehicles to the general tax regime.
Presently, locally produced electric bikes and hybrid vehicles benefit from the tax exemptions under this schedule, but the IMF’s proposal would subject them to the regular GST structure instead.
Potential end of tax relief
Should the government accept these recommendations, the tax exemptions on electric and hybrid vehicles will likely be rescinded as early as next year. This change could significantly influence production costs, consumer purchasing trends, and Pakistan’s ambitions for environmentally sustainable transportation development.
