The International Monetary Fund has opposed Pakistan’s plan for reduced taxation on electric and new energy vehicles. This means the IMF rejects EV sales tax relief at a critical moment, creating fresh uncertainty over the country’s upcoming auto policy.
According to reports, Pakistan proposed setting the sales tax on hybrid vehicles at half the standard 18 percent rate. It also proposed a 1 percent sales tax on new energy vehicles. However, the IMF reportedly rejected the proposal and sought additional clarifications before moving forward.
This disagreement comes as the government races to finalize the Auto Policy 2026-31. The current policy expires at the end of June, leaving little room for delay. Officials said unresolved differences between the Ministry of Industries and the Ministry of Commerce have further complicated matters. These tariff disputes now threaten to push past the June 24 deadline.
The Ministry of Industries has proposed several incentives to encourage electric vehicle adoption. These include a 1 percent customs duty on EV-specific parts for three years. The ministry also proposed exempting imported components from sales tax entirely. Additionally, it recommended a 1 percent sales tax on locally assembled new energy vehicles for five years. The proposal further suggests exemptions from federal excise duty, capital value tax, and withholding tax during the policy period.
However, Finance Ministry officials said the IMF prefers a different approach. The fund wants to maintain the standard 18 percent sales tax across all vehicles. Instead of tax breaks, the IMF reportedly favors offering incentives through direct subsidies.
The draft policy also seeks to accelerate localization in the auto sector. It targets up to 85 percent domestic value addition in two and three-wheeler vehicles by 2030. This includes electric vehicle categories specifically. Meanwhile, the policy proposes higher levies on expensive internal combustion engine vehicles. This step aims to encourage a gradual shift toward cleaner transportation options.
Pakistan’s existing auto policy expires this month, adding pressure to resolve these disagreements quickly. Any changes to sales tax or import duties must be incorporated into the Finance Bill 2026-27. Finally, the National Assembly is expected to pass that bill next week, leaving a narrow window to settle the dispute.
