The government has turned down the International Monetary Fund’s (IMF) proposal to charge an 18% sales tax on electric vehicles (EVs). Prime Minister Shehbaz Sharif approved the new Auto Policy 2026-31 on Tuesday, 20 October 2026, according to ARY News and TechJuice. The draft keeps a low tax on battery electric cars. Here is what it says, and what is still not final.
What Was Decided
ARY News reports that the prime minister approved a five-year auto policy aimed at raising local production, boosting exports and improving competition. The policy rejects the IMF’s proposal to raise the sales tax on EVs to 18%. TechJuice says the draft now goes to the federal cabinet for final approval, so it can still change.
EV and Hybrid Tax Rates in the Draft
| Vehicle type | Sales tax |
|---|---|
| Battery electric vehicles | 1% (2026 to 2031) |
| Range-extended EVs | 6% |
| Plug-in hybrids | 9% |
ARY News and TechJuice give the 1% rate for battery electric vehicles. ProPakistani, which also reported the story, did not state a rate for pure EVs, so treat 1% as reported by two outlets and not yet officially confirmed. TechJuice says the sales tax on EVs is reduced gradually until 2031, and that EVs valued above $75,000 face a 10% federal excise duty.
Customs Duty Cuts
- ProPakistani, citing unnamed sources, says duty on eligible EVs priced up to $75,000 would fall from 50% to 25% at first, then to 15% by 2030-31.
- ARY News says vehicle import duties will fall in phases, with lower rates for small EVs under $15,000, and TechJuice says auto-sector tariffs will drop to 15% by 2030-31.
Other Parts of the Policy
- Exports: The target is $6 billion in vehicle exports and $1.2 billion in auto parts exports by 2030-31. Manufacturers who meet their targets get compensation of 5% of export value, plus 10% extra on exports above the previous year’s level. Missing targets two years in a row can mean losing the manufacturing certificate.
- New levy: An Automotive Development Levy on vehicles above 1,000cc could raise over Rs232 billion in five years. The law for it is targeted for December 2026.
- EV loans: The financing limit would rise from Rs3 million to Rs10 million, and the repayment period from three to five years.
- Standards: A Pakistan Automotive Testing Institute would be set up, and international safety standards would apply to local and imported cars.
The Background: What the IMF Wanted
ARY News reported on 7 October that Pakistan and the IMF were in the final stage of talks on a $1.2 billion loan payment. The IMF had asked for an 18% sales tax on EVs priced up to $75,000. It also wanted to end the reduced tax on EVs and their parts, which it described as discriminatory. The IMF had reportedly agreed with Pakistan on a 25% sales tax for EVs above $75,000. In June, Finance Ministry officials said the IMF preferred keeping 18% on all vehicles and giving incentives through direct subsidies, according to ProPakistani.
The Ministry of Industries argued that the low rate was meant to encourage greener vehicles. It said hybrids already pay a lower rate, and that imported EV parts face 1% while local parts face 18%, which creates an uneven playing field.
What We Do Not Know Yet
- The IMF’s response: The reports include no IMF statement on the decision, and it is not clear how this will affect the loan talks.
- Cabinet approval: The policy has not yet been finally approved.
- Final tax rates: Reports differ on details, and the final figures may change.
- The start date: The reports do not say when the new rates would begin.
What It Means for Car Buyers
- If the 1% rate stays, battery electric cars would remain far cheaper to tax than petrol cars, which pay the standard 18%.
- Hybrid buyers would pay 6% to 9%, according to the draft.
- Prices will depend on the final policy and on customs duties, so avoid deciding until it is final.
Frequently Asked Questions
Did the government reject the 18% tax?
Yes. The draft auto policy rejects the IMF’s proposal, according to ARY News, TechJuice and ProPakistani.
What will the tax on electric cars be?
ARY News and TechJuice say 1% for battery electric vehicles. This is not yet final.
Is the policy final?
No. The prime minister approved the draft, and it goes to the cabinet.
What did the IMF say?
The reports include no IMF reaction to the decision.
When does it start?
The reports do not say.
The decision is good news for those planning to buy an EV, but it is not final. Watch for the cabinet’s decision and the IMF’s reaction.
