In a bold and potentially controversial move, the Federal Board of Revenue (FBR) is reportedly gearing up to impose significantly higher withholding taxes on luxury cars as part of the upcoming federal budget for fiscal year 2025-26. This decision, if approved, is poised to send shockwaves across Pakistan’s elite automotive market.
Insiders reveal that the FBR has already submitted its aggressive proposal to raise withholding tax rates specifically targeting vehicles with engine capacities above 1300cc. Should Parliament greenlight this hike, it could dramatically alter the dynamics of high-end car ownership and sales across the country.
The current tax structure imposes a withholding tax ranging from 2% to a staggering 12%, with rates escalating based on engine capacity. However, under the FBR’s new proposal, these percentages are expected to climb sharply, with the steepest increases reserved for high-end luxury cars. Vehicles exceeding 3000cc – often considered the hallmark of prestige and power – could become dramatically more expensive to purchase as a direct consequence of this proposed policy.
The FBR justifies this bold step as a crucial measure to boost national revenue and to address what it perceives as an unchecked rise in luxury vehicle imports and sales. This move comes at a time when Pakistan is grappling with significant fiscal pressures and actively seeking to broaden its tax base. In 2024 alone, the FBR successfully collected over Rs4 billion in withholding taxes from vehicle purchases. However, officials believe there is substantial untapped potential for far greater collections, particularly from those acquiring the most extravagant vehicles on Pakistan’s roads.
The groundwork for this policy shift was laid last year when the FBR transitioned to a value-based taxation model, replacing the outdated fixed advance tax system. Now, the FBR intends to go further, explicitly aiming to ensure that the ultra-wealthy contribute a more equitable share when purchasing high-end cars.
While critics may argue that such a move disproportionately targets only a small segment of society, supporters of the proposal claim it represents a necessary step towards more equitable taxation. Regardless of the debate, the message from the FBR is loud and clear: owning luxury cars in Pakistan is about to become considerably more expensive, and the tax authority is unapologetically driving this change. The automotive sector and luxury car enthusiasts are now closely watching the upcoming budget presentation.
