Budget 2026: Possible Tax Changes on EV, HEV, PHEV, REEV in Pakistan
The upcoming Budget 2026-27, expected to be announced on June 10, is generating anticipation among new energy vehicle (NEV) buyers in Pakistan. The focus is on potential revisions in tax relief for various vehicle technologies including electric vehicles (EVs), hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and range-extended electric vehicles (REEVs).
Last year, the government promoted green transportation by offering tax concessions on NEVs, while increasing taxes on combustion-engine vehicles. Currently, the tax structure stands as follows: EVs and REEVs benefit from a 1% tax rate, whereas HEVs and PHEVs attract an 8.5% tax rate.
However, new reports suggest the government might reduce these concessions in the forthcoming budget. Some proposals, reportedly backed by the International Monetary Fund (IMF), recommend raising tax on EVs to the standard 18%, ending the preferential treatment.
While one approach would maintain the 1% tax for EVs, the government appears inclined towards a compromise, possibly setting the rate between 12% and 14%. Additionally, import duties on EV parts might increase significantly—from 25% to 41% on locally assembled components, and from 10% to 25% on imported parts—raising costs further.
PHEVs remain uncertain with competing proposals: one suggests cutting tax down to 1%, aligning with EVs and REEVs, while the other advocates for an 18% standard tax. The decision will greatly impact PHEV market dynamics.
HEVs currently have an 8.5% tax rate, lower than the 18% or 25% levied on conventional petrol vehicles depending on engine size. Yet, the possibility of removing this advantage exists if the government moves to standardise tax rates.
REEVs, classified alongside EVs for tax purposes, currently enjoy the 1% rate but could face similar hikes if EV tax rates rise.
In summary, EVs and REEVs stand the most risk of losing tax relief, potentially resulting in higher prices. PHEVs are a wildcard, with future tax policy still unsettled. HEVs might have a slightly better position but are not guaranteed protection from increased taxation.
The final tax framework will be revealed during the federal budget presentation on June 10, clarifying the future landscape for NEVs in Pakistan.