Government withdraws 25% sales tax on hybrid vehicles

The federal government has withdrawn the proposal to impose a 25 per cent sales tax on hybrid electric vehicles (HEVs) in the Finance Bill 2024.

The current tax rate of 8.5 per cent on HEVs will continue following strong opposition by the Ministry of Industries and Production to abolish the 25 per cent sales tax rate.

The Engineering Development Board (EDB) and the Ministry of Industries had requested the Finance Division and the Federal Board of Revenue (FBR) to restore the 8.5 percent sales tax, arguing that the 25 percent tax contradicts the commitments made in the Auto Industry Development and Export Policy (AIDEP) 2021-26.

The government previously imposed an 8.5 per cent sales tax on hybrid vehicles, while the proposed tax is 25 per cent, which roughly amounts to a tax concession of Rs 1.5-2.2 million per vehicle.

The customs duty exemption on hybrid parts is about Rs 1 million, making the total exemption about Rs 3 million per car. Despite these exemptions, hybrid vehicles remain expensive, costing anywhere from Rs 10 million to at least Rs 15 million.

The FBR wants the sales tax concession for HEVs to be withdrawn as they argue that rich customers can afford to pay the tax. They suggest that the government should not give any more subsidies to the privileged class.

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