Cars to Become More Expensive as Govt Plans Luxury Tax on Nearly All Vehicles

The federal government is planning to impose higher advance taxes on luxury vehicles in upcoming budget 2025-26. Sources told ProPakistani that the Federal Board of Revenue (FBR) has finalized its proposals and submitted them to the International Monetary Fund (IMF). Currently, the withholding tax on vehicles is 2 percent of the total value for those with engine capacities between 1,300cc and 1,600cc; 3 percent for 1,601cc to 1,800cc; 5 percent for 1,801cc to 2,000cc; 7 percent for 2,001cc to 2,500cc; 9 percent for 2,501cc to 3,000cc; and 12 percent for vehicles above 3,000cc. The move builds on last year’s shift to a value-based taxation model that replaced fixed advance taxes with levies linked to vehicle prices across all categories. The latest measure aims to raise billions more in the upcoming fiscal year, as tax coverage expands to include smaller engine variants now reclassified as premium. The FBR collected more than Rs. 4 billion in withholding taxes from all vehicle segments in 2024, with officials projecting significant revenue growth after the new brackets take effect. While tightening restrictions on luxury gasoline vehicles, the government is taking a softer approach toward cleaner technologies. Authorities have decided to maintain reduced sales tax rates for locally assembled hybrid electric vehicles (HEVs) through June 2026. The current structure—8.5 percent for hybrids up to 1,800cc and 12.75 percent for those between 1,801cc and 2,500cc—will remain unchanged.