Pakistan's Budget 2025-26, unveiled by Finance Minister Mohammad Aurangzeb on June 10, brings significant changes for car buyers, dealers, and manufacturers. With a strong focus on revenue generation, environmental sustainability, and reducing reliance on fossil fuels, this year’s budget introduces several new taxes, levies, and policy reforms that will impact both local and imported vehicle markets.

Let’s take a closer look at how these changes could shape the future of Pakistan's automotive landscape.

Climate Support Levy: Encouraging The Shift Toward EVs

One of the most notable policy changes is the introduction of the Climate Support Levy. Targeting internal combustion engine (ICE) and hybrid vehicles—both locally assembled and imported—this new tax aims to both increase government revenue and promote cleaner transportation.

Here’s the tax breakdown by engine capacity:

1% for vehicles up to 1300cc
2% for vehicles between 1301cc and 1800cc
3% for vehicles above 1800cc

Only Electric Vehicles (EVs) and Plug-in Hybrid Electric Vehicles (PHEVs) are exempt from this tax, making them a more attractive option for buyers looking to avoid additional levies.

GST Increase On Smaller Vehicles

The General Sales Tax (GST) on vehicles with engines up to 850cc has been raised from 12.5% to 18%. This hike directly affects popular entry-level models like the Suzuki Alto and Suzuki Every, which dominate the budget car segment in Pakistan.

This change could lead to price increases in the affordable car category, impacting first-time buyers and small families.

Carbon Levy On Fuel Consumption

Another key announcement is the Carbon Levy on fossil fuels including petrol, high-speed diesel (HSD), and furnace oil. Starting at Rs. 2.5 per liter in FY 2025-26, this levy is designed to discourage fuel consumption and support investments in green infrastructure.

For everyday vehicle owners, this means higher running costs—a shift that may push more consumers toward fuel-efficient or electric alternatives.

Import Duties: Regulatory Relief With Long-Term Goals

Significant revisions have been made to Regulatory Duties (RD) and Additional Customs Duties (ACD):

RD maximum rate reduced from 90% to 50%
RD completely removed on 554 PCT codes
RD lowered on 559 PCT codes
ACD reduced on several tariff lines

The government plans to gradually phase out RD and ACD by 2030, aiming to make imported auto parts and vehicles more accessible. While this benefits importers and could reduce prices of foreign vehicles, it also poses challenges for local manufacturers who have long relied on protectionist policies.