Government Considers Reducing Hybrid Vehicle Sales Tax to 18%

Tax Policy Update: The Federal Government is reportedly considering reducing the sales tax on imported and locally supplied hybrid electric vehicles (HEVs) from the current 25% to 18%, with a summary submitted to the Finance Division for review and approval, according to a report by Business Recorder.

The proposed reduction is intended to ease the tax burden on consumers, lower the cost of hybrid vehicles, and encourage the adoption of environmentally sustainable transportation. The proposal will require formal approval from the Federal Cabinet before implementation.

Until June 30, 2026, hybrid electric vehicles were subject to a concessional 8.5% sales tax. However, the concession expired after no extension was provided through the Finance Act, 2026.

Following the expiry of the reduced tax rate, hybrid electric vehicles were placed under Schedule-II of SRO 297(I)/2023, making them subject to the standard 25% sales tax on both imported and locally supplied vehicles.

The Finance Act, 2026 introduced the revised 25% sales tax, which became effective from July 1, 2026, for all imports and domestic supplies of hybrid electric vehicles.

Subsequently, the Government reviewed the implications of the increased tax rate and is now expected to reduce the applicable sales tax to 18%, subject to completion of the prescribed approval process and formal notification.