The Federal Board of Revenue has reduced the sales tax on hybrid vehicles from 25 to 18 percent. The change applies to locally manufactured hybrid electric vehicles with engine capacity up to 2000cc. This reduced rate takes effect from September 13, 2026. The Ministry of Finance issued a formal notification confirming the change.

The notification, S.R.O. 1525(I)/2026, cites powers under clause (b) of sub-section (2) of section 3 of the Sales Tax Act, 1990. It also references the first proviso to clause (a) of that same sub-section. Additionally, the notification amends an earlier FBR notification, S.R.O. 297(I)/2023, dated March 8, 2023. That earlier notification had itself been amended once before, in March 2024.

Under the new amendment, officials added a fresh proviso after Table-II of the earlier notification. This proviso states that Table-II’s provisions no longer apply to locally manufactured hybrid vehicles up to 2000cc. The notification took effect immediately upon issuance.

It is worth noting that this move reverses a previous jump in taxation. Hybrid vehicles had earlier enjoyed a concessional rate of just 8.5 percent. However, once that exemption expired, authorities shifted hybrids into Schedule II of SRO 297(I)/2023. This shift subjected them to the standard 25 percent sales tax rate.

The latest reduction is expected to lower prices for locally assembled hybrid models. It could also bring hybrid tax treatment closer in line with the government’s broader push toward New Energy Vehicles. Meanwhile, officials are still finalizing the wider auto policy amid ongoing consultations with the International Monetary Fund. Therefore, this tax cut may represent just one piece of a larger policy shift still taking shape.

Pakistan’s new five-year Auto Policy for 2026-31, recently approved by Prime Minister Shehbaz Sharif, had already directed equal tax and duty treatment for hybrid and conventional vehicles. The same policy draft offers substantially higher tax relief to Battery Electric Vehicles compared with hybrids. Finally, this latest sales tax cut suggests the government is moving quickly to align hybrid vehicle policy with its stated auto sector goals.