ISLAMABAD – Car prices are all time high, with rates of entry level rides starting from Rs2.8million. The price of locally manufactured small cars in Pakistan is likely to rise further as government considers imposing a standard 18% sales tax on vehicles up to 850cc in the upcoming budget for fiscal year 2025–26.
A report shared by Saraffa Association shows these entry-level vehicles are taxed at a concessional rate of 12.5%. However, under a new proposal being reviewed by the Federal Board of Revenue (FBR), this reduced rate could be scrapped, bringing small cars under the regular 18% sales tax bracket.
After new changes, locally made cars will be more expensive, and adjustment is part of the government’s broader fiscal strategy to withdraw sales tax exemptions and boost revenue for the struggling economy.
The proposed tax hike would directly translate into higher prices for small cars, making them less affordable for the average Pakistani. The move is expected to particularly affect buyers of popular 660cc–850cc models, which are among the most sought-after for their fuel efficiency and affordability.
FBR is considering raising Withholding Tax (WHT) rates on vehicles with engine capacities above 1,300cc. Currently, WHT ranges from 2% to 12% based on engine size — but new proposals aim to push these rates even higher, further increasing the overall cost of vehicle ownership.
The government is also reviewing policies around used car imports, including the possibility of allowing importation of vehicles up to five years old, which could offer some relief to consumers by broadening options in the second-hand market.
In 2024, the FBR collected over Rs4 billion in WHT from the auto sector under a value-based tax regime introduced last year. With further hikes expected in Budget 2025–26, both new and used cars are likely to see price increases, leaving consumers bracing for more financial strain.
