Pakistan Auto Policy 2026: EV Tax Relief Moves Ahead

Pakistan’s proposed Auto Policy 2026–31 has reportedly cleared a major hurdle by addressing the IMF’s concern over lost tax revenue. The plan now appears more likely to move ahead, but it is still not final. Federal cabinet approval is still pending, and tax changes will only matter after the proper legal notifications are issued.

The draft policy tries to make electric vehicles cheaper without creating a bigger gap in government revenue. The main idea is simple: give lighter tax treatment to battery-powered vehicles, then recover part of that revenue from petrol and diesel vehicles through a new Automotive Development Levy, or ADL. For background, read our earlier coverage: What Are Electric Vehicles and How Do They Work?.

Proposed sales tax rates favor battery EVs

The draft puts fully electric cars at the top of the incentive list:

• Battery Electric Vehicles (BEVs): 1% proposed sales tax

• Range-Extended EVs (REEVs): 6%

• Plug-in Hybrid EVs (PHEVs): 9%

• Hybrids and ICE vehicles: 18%

These are only proposed rates. Buyers should not use them to calculate current showroom prices yet.

The structure gives the biggest benefit to fully electric cars, while hybrids and conventional vehicles stay at the standard 18% level under the draft.

If you want a broader look at the local EV market, see our Electric Vehicles in Pakistan: The Complete Guide 2026.

ADL would help pay for the EV push

The other side of the policy is the new ADL on conventional vehicles:

• Up to 1,000cc: 0% proposed ADL

• 1,001cc to 2,000cc: 2%

• Above 2,000cc: 10%

• Commercial prime movers, buses and trucks: 2% proposed ADL

That means a small car under 1,000cc may escape the levy, but a 1.5-liter car could fall into the 2% bracket. Larger SUVs and bigger petrol vehicles could face the steeper 10% rate.

Earlier policy work had estimated that the ADL could bring in more than Rs. 232 billion over five years. That money is expected to support EV incentives and export-related industry measures.

Extra relief for EV buyers

The draft also suggests more support for qualifying EVs priced up to $50,000. These vehicles may be exempt from:

• Capital Value Tax

• Withholding Tax

• Federal Excise Duty

The plan also raises the financing cap to Rs. 10 million, with a maximum repayment period of five years. That could help some buyers, but the final benefit will still depend on bank rates, vehicle price, and loan approval.

EVs above the $50,000 mark would not get the same treatment and would fall under the usual luxury-vehicle tax rules.

Booking terms may become more buyer-friendly

One of the more practical changes in the draft is a cap on booking advances. Manufacturers would not be allowed to take more than 20% of the vehicle price at booking.

That could reduce the cash burden on buyers and stop dealers from asking for very large advance payments. Still, this rule will only matter once the policy is formally approved and notified.

What buyers should do now

For now, buyers should be careful not to assume the 1% EV tax rate is already active.

If you need a car soon, compare current taxes and dealer invoices instead of waiting for a policy that is still not live. ICE buyers should also check how much ADL their chosen engine size may attract. Those planning to finance a car should use current bank rates, not the proposed ceiling alone.

The direction is clear: Pakistan wants to support EVs and make conventional vehicles help fund that shift. But until the cabinet signs off and the legal process is complete, the draft stays a draft.

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