PM approves 1% sales tax on electric cars in new five-year auto policy

Prime Minister Shehbaz Sharif has approved cutting the sales tax on battery electric vehicles (BEVs) to just 1% and sharply reducing import taxes under a new five-year auto policy, a move expected to lower the prices of both conventional and electric cars, The Express Tribune reported.

After months of discussions, the prime minister on Tuesday approved the final draft of the Automotive and Auto Parts Policy 2026-31. It will now go to the International Monetary Fund (IMF) for approval before the federal cabinet considers it. After that, the government will present a bill in parliament to bring the new tax rates into force.

The final draft was presented to the prime minister after being endorsed by a committee led by the law minister.

Lower taxes on electric cars

The policy divides new energy vehicles (NEVs) into three groups. Subject to IMF approval, sales tax would be:

• Battery electric vehicles: 1%
• Range-extended electric vehicles: 6%
• Plug-in hybrids: 9%

The rates apply to both locally assembled and imported vehicles. Conventional hybrids will be treated the same as petrol and diesel cars for duties and taxes.

For small electric vehicles worth less than $15,000, about Rs4.2 million, the import tariff will be cut to 5% for the first two years of the policy.

The prime minister also endorsed raising the credit limit for NEV financing from Rs3 million to Rs10 million, with the repayment period extended from three to five years.

A levy on petrol and diesel cars

At the same time, the prime minister approved a levy of 2% to 10% on internal combustion engine (ICE) vehicles. It is expected to raise about Rs232 billion over five years and is meant to push car assemblers to increase exports.

Petrol and diesel cars above 2,000cc and NEVs worth more than $75,000 will pay higher federal excise duty to discourage their use. By 2031, customs duty on all ICE cars and SUVs will be 15%, with no additional or regulatory duty.

What it could mean for prices

The draft projects these first-year changes:

Model	Current price	Projected price
Suzuki Alto	Rs3.2 million	Rs2.845 million
Wuling Bingo (BEV)	Rs4 million	Rs2.7 million
Suzuki Cultus	Rs4.3 million	Rs3.8 million
BEV comparable to the Cultus	Rs5.3 million	Rs3.6 million
Toyota Yaris 1496cc	Rs6 million	Rs5.3 million
Baojun Yep Pulse (BEV)	Rs6.3 million	Rs5 million
Kia Sportage	Rs12.2 million	Rs11.1 million
Haval AWD PHEV	Rs12.9 million	Rs11.1 million
MG HS (petrol)	Rs9.5 million	Rs9.2 million
MG HS PHEV	Rs10.3 million	Rs9 million
Toyota Fortuner	Rs20.5 million	Rs21.7 million
Toyota RAV PHEV	Rs23.3 million	Rs18.3 million

The Fortuner is the one model projected to get more expensive, because of a new 5% federal excise duty and the 10% ICE levy. Prices are expected to fall further as customs duty cuts take effect over the five years.

The changes will only take effect once the IMF and the cabinet sign off and parliament passes the bill. Car sales have already jumped 43pc in the first quarter even as uncertainty over the policy held back investment.