Govt may impose 25% sales tax on imported EVs, retain rates for locally made hybrids

The federal government is considering imposing a sales tax of up to 25% on imported electric vehicles in the fiscal year 2026-27 budget, while existing tax rates on locally manufactured hybrid vehicles are expected to remain unchanged, Business Recorder reported, citing sources.

Several electric vehicle-related sales tax concessions are scheduled to expire on June 30, 2026. These include the exemption on imports of completely knocked down kits by local electric vehicle manufacturers.

The concession currently covers small cars and sport utility vehicles with battery capacities of up to 50 kilowatt-hours, as well as light commercial vehicles with batteries of up to 150 kilowatt-hours.

Locally manufactured or assembled four-wheel electric vehicles in the same categories are currently subject to a reduced sales tax rate of 1%, which applies only until June 30.

Lower sales tax rates ranging from 8.5% to 12.75% apply to locally manufactured hybrid electric vehicles until the end of the current fiscal year.

Sources said the government was likely to retain the existing tax treatment for hybrid vehicles during FY27, while increasing taxation on imported electric vehicles.

The final measures will be included in the Finance Bill and remain subject to federal government approval.

Customs concessions

Separately, the Senate Standing Committee on Finance has approved the Customs (Amendment) Bill, 2026, to implement financial provisions of the Automotive Industry Development and Export Policy 2021-26.

Following its deliberations, the committee unanimously recommended passage of the proposed legislation.

The amendments are intended to align electric vehicle concessions under the Automotive Industry Development and Export Policy with Part V(A) of the Fifth Schedule to the Customs Act, 1969.

The government had proposed extending concessional customs duties on imports of electric vehicle-specific parts and components until June 30, 2026, to support local manufacturing and the transition towards electric transport.

The Federal Cabinet initially approved the electric vehicle policy on June 16, 2020.

Under the policy, concessional customs duties were granted for five years from July 1, 2020, on imports of specialised components for electric two- and three-wheelers.

The concessions also covered conditional imports of new electric two- and three-wheelers in completely built-up form by manufacturers and components for electric trucks, buses, prime movers and other heavy commercial vehicles.

These measures were incorporated into the Fifth Schedule to the Customs Act through the Finance Act, 2020.

The Federal Cabinet later approved the Automotive Industry Development and Export Policy 2021-26 on December 21, 2021.

The policy extended concessions for electric two- and three-wheelers and heavy commercial vehicles until June 30, 2026.

It also expanded the concessionary framework to cover electric vehicle-specific components used in light commercial vehicles and vans on the same basis as other four-wheel vehicles.

Under the Customs (Amendment) Bill, concessions on imports of completely built-up electric vehicles have also been extended until June 30, 2026 for local manufacturers and assemblers.

The concession allows imports of up to 10 units of the same vehicle variant intended for local assembly or manufacturing.

For the electric two- and three-wheeler segment, the maximum concessionary import limit is 200 units.

Eligible vehicles must be approved and certified by the Engineering Development Board under the Electric Vehicle Policy 2020.