Islamabad, June 9, 2025: The federal government of Pakistan is once again considering a significant sales tax increase on locally manufactured and assembled motorcars with engine capacity up to 850cc. Despite earlier rejection last week, the proposal to raise the tax on small cars has been revived amid growing fiscal challenges.
According to top government officials, the previously shelved plan to raise the sales tax from the current range of 10–12.5% to a steeper 15–18% is now being reintroduced for inclusion in the Finance Bill 2025. This move is part of broader revenue-enhancement strategies aimed at addressing Pakistan’s mounting budget deficits ahead of the fiscal year 2025-26.
Historically, small engine cars have enjoyed preferential tax rates to ensure affordability for middle-income buyers. However, the proposed tax hike reflects a shift in the government’s approach, prioritizing increased revenue generation over subsidized pricing for entry-level vehicles.
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This potential motorcar tax hike 2025 is expected to impact consumer prices for small cars, signaling a notable change in the automotive sector’s taxation landscape. Market analysts suggest that this step could influence buyer behavior and vehicle affordability across Pakistan.
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