Budget 2026-27 auto sector breakdown: evading the 18% GST bullet, luxury EV taxes, and the awaited NEV policy

For weeks before the 2026-2027 Federal Budget , Pakistan's automotive space was running on rumours and dread. Social media was flooded with fear, fear that the government's patience with green mobility had finally run out, that EVs would see their concessional 1% sales tax jump all the way to the standard 18%, while hybrids would lose their 8.5% rate and face the same fate. Just as petrol costs made the idea of an eco-friendly vehicle attractive.

Range-Extended Electric Vehicles drew their own wave of anxiety, with predictions that REEVs would be stripped of their pure-EV tax status and grouped in with PHEVs and standard hybrids for punishment.

When the Budget Speech and Finance Bill 2026 were finally released the sky didn't fall, the picture that emerged was more nuanced than either camp had expected: broad protection for locally assembled and mass-market EVs, paired with steep new levies aimed precisely at the luxury import end of the market.

Here is a detailed breakdown of what actually made it into law, and what remains unresolved.

1. The rumor mill vs. reality: mass market tax relief extended

The 18% sales tax did not materialise. Rather than upending the EV ecosystem, the government chose to protect it. The Budget Speech confirmed that existing concessional tax regimes for electric motorcycles, rickshaws, cars, and buses would continue into the next fiscal year.

The Finance Bill 2026 follows through with concrete extensions. The Eighth Schedule of the Sales Tax Act keeps the 1% sales tax on locally manufactured EVs and the 8.5% rate on locally manufactured HEVs up to 1800cc firmly in place. Under the Fifth Schedule of the Customs Act, the 1% customs duty on EV-specific CKD components  covering two and three-wheelers, four-wheelers, and heavy commercial vehicles  has been extended to June 30, 2027. The 25% customs duty concession for imported Completely Built Unit four-wheeler EVs priced below $50,000 has likewise been extended to the same date. 

Beyond the tax extensions, the government has introduced the Pakistan Accelerated Vehicle Electrification (PAVE) scheme, which offers subsidised financing for the purchase of e-bikes and e-rickshaws. A 1% sales tax facility has also been proposed for imported electric trucks, nudging the commercial freight segment toward electrification.

2. The big shock: massive FED on luxury CBU EVs

So what actually changed? Mass-market EVs may have been spared, but the rumours about higher taxes on imported CBUs were not entirely wrong  they just arrived in a different form. Rather than a sales tax hike, the Finance Bill introduces a new tiered Federal Excise Duty structure under the First Schedule, targeting imported CBU electric cars, SUVs, and pickups meant for personal use.

The structure is tiered by value. Imported CBU EVs priced up to PKR 20 million face 0% FED. Those falling between PKR 20 million and PKR 30 million are hit with a 30% FED, while anything exceeding PKR 30 million faces a 40% FED. The Finance Minister's reasoning was straightforward: green subsidies were not designed for the buyers of Audi e-trons, Porsche electric models, or high-specification BMWs, and this budget closes that loophole with considerable force.

The same logic extends to large combustion vehicles. Imported motor cars and SUVs with engine capacities between 2000cc and 3000cc now face a 40% ad valorem FED, while those above 3000cc will pay 41%.

3. Token tax overhaul for Islamabad (ICT)

For individual car owners registering their vehicles in the Islamabad Capital Territory, the fixed token tax system for larger engines has been abolished. The Finance Bill shifts the calculation to a percentage of the vehicle's invoice value 0.25% annually for engines between 1001cc and 2000cc, and 0.35% annually for anything above 2000cc. The shift means the annual tax burden now scales with what a vehicle actually costs, rather than a flat figure that bore little relationship to its price.

4. REEVs, PHEVs, and the awaited NEV policy

The question everyone in the new-energy vehicle space wanted answered  whether REEVs would be reclassified and penalised alongside PHEVs and standard hybrids but this was not answered by the Finance Bill 2026. The bill introduced no new hostile tax tier specifically targeting REEVs, meaning they currently continue to fall under standard electric and hybrid definitions depending on their exact customs classifications. However, the regulatory landscape is not fully settled.

As announced in the Budget Speech, a comprehensive new Auto Sector Policy is currently under review by a special committee formed by the Prime Minister, with details to be presented to Parliament following approval by the Federal Cabinet.

Industry insiders believe that this forthcoming New Energy Vehicle (NEV) draft policy will definitively categorise REEVs and PHEVs and lay out their long-term tariff structures. REEVs survived this budget. Whether they retain tax parity with pure EVs going forward will be decided not in the Finance Bill, but in whatever the committee tables next.