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By Malik Shahzad Aslam :
Pakistan’s federal government has introduced a 25% sales tax on hybrid vehicles, ending the tax relief previously available to both imported and locally assembled hybrid cars.
The new taxation policy came into effect on July 1, 2026, following the expiry of the previous sales tax exemption at the end of the 2025-26 financial year on June 30.
The measure was implemented under the Finance Act 2026-27, with hybrid vehicles moved into Schedule II of SRO 297(I)/2023, placing them under the standard 25% sales tax category.
The decision represents a major shift in Pakistan’s electric and hybrid vehicle policy. Earlier indications suggested that locally manufactured hybrid vehicles might continue receiving some tax benefits while imported models faced higher duties. However, the final policy applies the new tax rate to both imported and locally supplied hybrid vehicles.
Impact on Pakistan’s Electric Vehicle Market
The policy change also affects the wider electric vehicle (EV) sector, with the government withdrawing several incentives introduced to encourage EV adoption.
Tax exemptions on imported Completely Knocked Down (CKD) kits used by local EV manufacturers have been removed, while the previous reduced 1% sales tax regime for certain locally assembled electric vehicles has also ended.
The earlier tax relief covered selected categories, including small electric vehicles and SUVs with battery capacities of up to 50 kWh, as well as light commercial electric vehicles with batteries up to 150 kWh.
Consumers Likely to Face Higher Prices
Industry observers expect the new tax regime to increase vehicle prices as manufacturers and importers transfer the additional tax burden to consumers.
Hybrid vehicles had gained popularity in Pakistan due to their improved fuel efficiency and lower running costs compared with conventional petrol vehicles. They also offered an alternative for buyers concerned about the limited availability of charging infrastructure for fully electric vehicles.
With the removal of tax incentives, the price difference between hybrid and petrol vehicles is expected to narrow, potentially affecting future demand for hybrid models in the country.
The government has said its broader objective remains the development of a sustainable transport sector, but the latest taxation changes mark a significant adjustment in incentives for Pakistan’s emerging green vehicle market.
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