PM Approves Major Tax Relief For New Energy Vehicles

Prime Minister Shehbaz Sharif has approved major tax relief for new energy vehicles (NEVs) under the draft five-year Auto Policy for 2026 to 2031, including a 1 percent sales tax and exemptions from a number of other taxes.

Key points

• PM Gives In-Principle Approval to New Auto Policy 2026-31 Sep 9, 2026 4: 23 pm.
• For up to 1000 cc cars, customs duty will be 50 percent and GST 25 percent for FY26-27 and FY27-28.
• Royal Power Launches 70cc Motorcycle in Pakistan Sep 9, 2026 6: 33 pm.
• Punjab Expands Electric Bus Service to Tehsil Level Sep 9, 2026 4: 53 pm.
• Foreign consultant Stefan Dercon had recommended 40 percent customs duty, 30 percent FED and 20 percent GST for over 1800 cc cars.

Under the approved proposal, NEVs, their completely knocked down kits, parts, inputs and raw materials will be subject to a 1 percent sales tax. NEVs will additionally be exempt from federal excise duty, Capital Value Tax and withholding tax, noted Express Tribune.

In practice, the administration has additionally approved an growth in the loan limit for purchasing NEVs from Rs. 3 million to Rs. While the maximum loan period will be rose from three years to five years, 10 million. While battery swap stations will be backed through viability gap funding, customs duty on imported charging stations will be set at 1 percent. ADB Projected To Lead $2.5 Billion Financing For ML-1.

Meanwhile, the policy will offer the most favorable tax treatment to battery electric vehicles, followed by range extended electric vehicles and plug-in hybrid electric vehicles.

In practice, the prime minister additionally decided that hybrid electric vehicles and conventional internal combustion engine vehicles will receive equal treatment in terms of duties and taxes.

During Wednesday's proceedings, the premier created certain changes to the proposed policy, particularly instructing to separate Range Extended Electric Vehicles (REEVs) and Plug-In Electric Vehicles (PHEVs) from Battery Electric Vehicles (BEVs).

He additionally asked to abolish the proposed federal excise duty on below 1000 cc conventional cars and cut the customs duty rate from 30 percent to 15 percent on all cars for the fifth year of the policy, fiscal year 2030-31.

Meanwhile, the prime minister approved the draft policy for 2026-31 and, to bring it largely in line with the National Tariff Policy (NTP), the rates will be implemented from the current year to offset the impact of the delay. Massive relief for NEVs.

In practice, the committee constituted to achieve consensus on the new policy had proposed equal treatment of BEVs, REEVs and PHEVs as per the New Energy Vehicles Policy. But the prime minister did not agree. BEVs will have the most preferential tax treatment, followed by REEVs and then PHEVs.

There will be only 1 percent sales tax on NEVs, their completely knocked down (CKD) kits, parts, inputs and raw materials. There will additionally be exemption of federal excise duty (FED), Capital Value Tax (CVT) and Withholding Tax (WHT) on NEVs, according to the decision. But the administration has decided that there will be further FED on conventional vehicles to compensate for the cost drop due to tariff reductions.

According to another incentive, the loan limit for buying NEVs has been approved to be enhanced from Rs3 million to Rs10 million, and the tenor of the loan will be up from three years to five years. The administration decided that there will additionally be 1 percent customs duty on the import of charging stations, and swap stations will be backed through Viability Gap Funding. Tariff wall largely stays.

According to the approved draft, there will be up to 80 percent reduction in automobile tariff with no regulatory duty, and extra customs duty on the import of cars will additionally end after two years. But due to other changes, the overall protection available to existing assemblers largely remains in place for the first two years and then will go down in the next two years.

Administration office-holders involved in policy-making noted the proposed tariffs for completely built units would remain within upper tariff limits of the NTP except in the last year. The tariff will be reviewed after two years on the basis of energy cost, tax, interest rates, exchange rate flexibility and export performance, they continued.

For context, the Industry Ministry had presented the first draft of the auto policy to the prime minister in June. This person referred the matter to Minister for Climate Change Dr Musadaq Malik. Then another committee was constituted under Minister for Power Sardar Awais Laghari. The deputy prime minister additionally took up the recommendations.

Laghari's committee held 14 sessions and proposed the draft. It the committee called an "attempt to strike a balance between the need for protection and opening the automobile industry to competition."

Notably, the stated objectives of the policy are to grow exports by linking auto parts into global value chains, set upfront performance targets with clear penalty and reward mechanisms, promote EVs throughout all categories, improve quality and lower costs of all vehicles except the luxury segment, and open competition for innovation, technology and better vehicle features.

It has been decided that statutory regulatory orders will be phased out by fiscal year 2029-30. The tariffs for the first two years will remain unchanged.

According to the approved policy, for over 1801 cc SUVs and cars, the customs duty rate will be 40 percent, FED 60 percent and sales tax 25 percent for FY26-27 and FY27-28. For FY28-29, customs duty will reduce to 40 percent and the rest of the taxes will stay the same. For FY29-30, it will go down to 30 percent. But for FY30-31, customs duty will be 15 percent, FED 60 percent and sales tax 25 percent.

Foreign consultant Stefan Dercon had recommended 40 percent customs duty, 30 percent FED and 20 percent GST for over 1800 cc cars. For cars of 1001-1800 cc, customs duty will be 50 percent, FED 15 percent and GST 25 percent for FY26-27 and FY27-28.

For FY28-29, customs duty will be 40 percent, FED 15 percent and GST 15 percent. For FY29-30, customs duty will be 30 percent, FED 15 percent and GST 25 percent.

For FY30-31, customs duty will be 15 percent, FED 15 percent and GST 25 percent.

For up to 1000 cc cars, customs duty will be 50 percent and GST 25 percent for FY26-27 and FY27-28. For FY28-29, customs duty will reduce to 40 percent, and for FY29-30 to 30 percent. For FY30-31, customs duty will be 15 percent and GST 25 percent.

Based on these rates, there will not be any substantial reduction in rates of up to 850 cc ICE vehicles. Rates in the first year of implementation will reduce only 5.5 percent due to the government's decision to impose 4.5 percent further customs duty. This will be almost equal to comparable NEV rates, according to the policy document.

For up to 1000 cc ICE cars, rates will additionally not reduce in the first years, but during the fifth year of implementation, these can go down by 9 percent, a benefit that may be offset due to annual cost increases.

Meanwhile, the administration will impose 5 percent FED on 1500 cc cars to deny some benefits of rate reduction, but in the fifth year, rates will be cut by 11 percent or Rs650, 000. Nevertheless, this benefit may additionally reduce due to annual cost increases.

Under the new policy, the administration will offer fiscally neutral duty and local tax drawback schemes to encourage exports, and there will be legally binding and enforceable mandatory export regimes. There will additionally be a target to attract at least five anchor parts manufacturing firms and establish SME clusters around them.

For context, the manufacturing license will be linked to agreement with principals for a share in the global export market, and there will be separate CKD import for left-hand drive vehicles. There will be no duty on the import of parts applied for exports, and an Auto Parts Export Council will be set up for coordination and developing synergy.

There will be a minimum domestic value addition requirement to measure and enforce value addition, and contract manufacturing will reduce production costs by allowing the employ of existing idle capacity.

Meanwhile, the draft policy has been approved for 2026 to 2031 and will now undergo legal vetting. The Finance Ministry has additionally been directed to take the proposal to the International Monetary Fund for review.

While customs duties on imported vehicles are planned to decline over the five year period, separately, the policy provides continued protection for existing conventional vehicle assemblers. Stay Connected with ProPakistani.

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Taken together, the developments around PM Approves Major Tax Relief For New Energy Vehicles point to a situation that is still moving, and the coming days should bring more clarity.