2026-27 Budget Raises Taxes on Luxury Cars and EVs
Pakistan’s National Assembly has approved the Federal Budget for the fiscal year 2026-27, introducing significant tax changes impacting the automotive sector. The new measures primarily target luxury car imports, completely built-up (CBU) electric vehicles, and vehicle registrations in Islamabad, resulting in increased costs for high-end vehicles and an altered taxation structure.
Luxury Internal Combustion Engine (ICE) Vehicles
The government has imposed substantial additional taxes on high-displacement ICE vehicles to reduce foreign exchange outflows. While the existing Federal Excise Duty (FED) on these vehicles remains unchanged, a new Special Excise Duty (SED) has been added:
- For vehicles between 2000cc and 3000cc: the existing 30% FED is supplemented by an 86% SED.
- For vehicles above 3000cc: the current 40% FED now includes a 92% SED.
Imported Electric Vehicles (EVs)
The previously applicable 0% FED incentive for imported CBU electric vehicles has been revised. The new budget introduces a three-tier FED structure based on the vehicle’s invoice value:
- Vehicles valued up to PKR 2 crore (approx. $75,000): retain a 0% FED to encourage affordable electric mobility.
- Values between PKR 2 crore and 3 crore ($75,000–$110,000): FED increases to 30%, affecting premium mid-tier EVs.
- Above PKR 3 crore (approx. $110,000): FED is set at 40%, applying tax levels similar to those for luxury ICE vehicles.
Islamabad Vehicle Token Tax Adjustments
For the Islamabad Capital Territory (ICT), the long-standing fixed low-cost annual token tax system has been replaced by an invoice-value-based regime for vehicles over 1000cc engine capacity:
- Up to 1000cc: a fixed token tax applies, up to PKR 20,000 for certain vehicles.
- 1001cc to 2000cc: taxed at 0.25% of the vehicle’s invoice value annually, e.g., PKR 6,250 yearly for a PKR 2.5 million car.
- Above 2001cc: taxed at 0.35% of the invoice value annually.
Summary of Tax Changes
| Category | Previous Tax Rate | Approved Tax Rate (2026-27) |
|---|---|---|
| ICE Imports (2000cc–3000cc) | 30% FED | 30% FED + 86% SED |
| ICE Imports (Above 3000cc) | 40% FED | 40% FED + 92% SED |
| Imported CBU EVs (Value < PKR 2 crore) | 0% FED | 0% FED (No Change) |
| Imported CBU EVs (Value PKR 2 crore–3 crore) | 0% FED | 30% FED |
| Imported CBU EVs (Value > PKR 3 crore) | 0% FED | 40% FED |
| Islamabad Token Tax (1001cc–2000cc) | Fixed Low Rate | 0.25% of Invoice Value |
| Islamabad Token Tax (>2000cc) | Fixed Low Rate | 0.35% of Invoice Value |
Implications
The budget signals a shift towards taxing luxury automotive imports more heavily, discouraging high-value ICE vehicle imports while still promoting entry-level electric vehicles through tax incentives. However, the introduction of percentage-based token taxes in Islamabad will increase the recurring cost burden for many vehicle owners, particularly those with higher engine capacities.
Overall, the government aims to balance foreign exchange conservation and encourage electric mobility, albeit with a greater financial load on affluent consumers and owners of luxury vehicles.