Pakistan’s transition toward cleaner transportation could face a major hurdle as the federal government is reportedly considering withdrawing tax incentives for electric vehicles (EVs) in the upcoming Budget 2026-27.
According to sources, the government is evaluating a proposal to increase the sales tax on electric vehicles from the current concessional rate of 1 percent to the standard rate of 18 percent. If approved, the move would substantially increase EV prices and could dampen consumer demand in a market that has recently shown signs of growth.
The proposed measure is part of broader revenue-enhancement efforts being discussed ahead of the federal budget. However, industry stakeholders fear that removing tax concessions could slow investment, discourage buyers, and undermine Pakistan’s long-term clean energy and transportation goals.
Electric vehicles have gained popularity in Pakistan in recent years as consumers seek alternatives to rising fuel costs. Government incentives introduced under the country’s EV policy have encouraged both local and foreign investors to enter the market, helping develop an emerging electric mobility ecosystem.
A significant increase in sales tax is expected to raise the cost of ownership, making EVs less accessible for middle-income consumers who have increasingly viewed electric transportation as a cost-effective alternative to conventional vehicles.
Industry experts argue that continued support for EV adoption is crucial for reducing carbon emissions and lowering the country’s dependence on imported petroleum products. Pakistan spends billions of dollars annually on fuel imports, and policymakers have previously promoted electric mobility as a strategy to ease pressure on foreign exchange reserves.
Demand for electric vehicles has reportedly increased in recent months as persistently high fuel prices encouraged consumers to explore more economical transportation options.
In addition to changes affecting EVs, the government is also reportedly considering increasing the sales tax on hybrid vehicles from 8.5 percent to 18 percent under the same fiscal proposals.
If implemented, the proposed tax measures could reshape Pakistan’s automotive industry, increase vehicle prices across key segments, and slow the country’s transition toward cleaner and more sustainable transportation technologies.
The Ministry of Finance has not yet issued an official statement regarding the proposed changes.
