PM approves 1% sales tax on battery EVs under new five-year auto policy
Prime Minister Shehbaz Sharif on Tuesday approved a draft five-year automotive policy that would cut the sales tax on battery electric vehicles to 1% and reduce import duties across new energy and conventional vehicles, according to the approved policy draft. The plan still requires International Monetary Fund approval and a federal cabinet nod before the government presents a bill in parliament to give the rates legal effect.
The draft, endorsed by a committee led by Law Minister Azam Nazir, splits new energy vehicles into three categories: range extended electric vehicles, plug-in hybrid electric vehicles and battery electric vehicles. Subject to IMF approval, sales tax would fall to 1% on BEVs, 6% on REEVs and 9% on PHEVs, for both locally assembled and imported vehicles. Hybrid electric and internal combustion engine vehicles would be treated equally for duties and taxes.
To fund export incentives, the premier approved an internal combustion engine levy of 2% to 10%, intended to raise an estimated Rs232 billion over five years and redistribute it to car assemblers. The policy sets a $6 billion export target, with exporters receiving 5% compensation on the base value of exports rising to 10% on incremental exports. Manufacturers that miss minimum export targets would face penalties of 1% to 3% of annual production value, and two consecutive years of failure would cancel the manufacturing certificate.
The draft projects steep price effects. The Suzuki Alto would fall from Rs3.2 million to Rs2.845 million this fiscal year, while the comparable Wuling Bingo BEV would drop from Rs4 million to Rs2.7 million. The Toyota Fortuner is projected to rise from Rs20.5 million to Rs21.7 million on a new 5% federal excise duty and the ICE levy, while a comparable RAV PHEV would fall from Rs23.3 million to Rs18.3 million. Vehicles above 2,000cc and NEVs valued above $75,000 would face higher excise duty.
The premier also endorsed raising the credit limit for new energy vehicle financing from Rs3 million to Rs10 million, with the tenor extended from three to five years. For the first two years, small electric vehicles valued under $15,000 would attract a 5% tariff, with a 1% tariff on EV-specific non-localised parts imported in CKD form.
