IMF recommends higher taxes on hybrid vehicles in Pakistan

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Fund proposes raising sales tax on plug-in hybrid, range-extended vehicles, prompting govt to review auto policy

The International Monetary Fund (IMF) has recommended changes to Pakistan’s proposed electric and hybrid vehicle tax structure during ongoing economic review talks, with the government expected to reassess its auto policy in light of the recommendations.

According to sources, the IMF has recommended reviewing the existing tax treatment of electric and hybrid vehicles, particularly the concessions proposed for plug-in hybrid electric vehicles (PHEVs) and range-extended electric vehicles (REEVs).

The recommendation comes as the government and IMF continue discussions on the draft Auto Policy 2026–31. The talks have so far remained inconclusive, with the Fund seeking further information and raising objections to parts of the proposed policy.

A key proposal is to raise the sales tax on plug-in hybrid and range-extended vehicles from the proposed 1% rate to the standard 18% GST.

The proposal would effectively withdraw the tax incentive planned for these categories, potentially making plug-in hybrid and range-extended vehicles more expensive if the higher rate is adopted.

The draft Auto Policy had proposed a 1% sales tax for new energy vehicles, with battery electric vehicles, plug-in hybrids and range-extended electric vehicles receiving similar treatment.

The government is expected to review the proposed Auto Policy 2026–31 in light of the IMF’s recommendations before the policy is finalised.

Recent discussions between Pakistan and the IMF ended without a final agreement on the draft, and further consultations with the Fund, local automakers and importers are expected before the policy moves forward for approval.

The proposed policy aims to promote electric vehicles while gradually reducing tariffs on conventional vehicles. It also seeks to encourage competition and investment in the automotive sector.

The proposed 1% sales tax for new energy vehicles was part of the government’s effort to encourage EV adoption, while the IMF has previously supported measures designed to increase EV uptake through a combination of incentives and taxation of internal-combustion-engine vehicles.

However, the latest talks indicate that the tax treatment of different vehicle technologies remains under discussion. Any changes to the proposed rates will have to be incorporated into the final auto policy before it receives formal approval.

IMF also raises concerns over Pakistan’s plan to tackle Rs3.6tr in gas-sector circular debt

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