The federal government is considering a major tax adjustment that could impact the prices of smaller vehicles, as it plans to impose a standard 18 percent sales tax on locally manufactured or assembled cars with engine capacity up to 850cc in the upcoming federal budget for 2025-26.
Currently, these vehicles are taxed at a reduced rate of 12.5 percent. However, the Federal Board of Revenue (FBR) is actively reviewing a budget proposal to withdraw this concession by amending the Eighth Schedule of the Sales Tax Act, 1990.
Read More: Weather Department Predicts Rain Across Pakistan
If the proposal is approved, the FBR will remove entry number 72 from the Eighth Schedule, thereby subjecting these small-engine vehicles to the standard sales tax rate applied across most goods and services in the country.
According to officials, the measure is part of a broader push to boost revenue collection in the new fiscal year. The FBR is currently assessing various exemptions and preferential tax rates with the intention of streamlining them to match the standard 18 percent rate.
The move, if implemented, is expected to raise car prices in the small-engine segment, which has long benefited from tax relief to support affordability for middle and lower-income buyers.
The proposed change will be formally considered as part of the federal budget, expected to be presented in June.
