In the latest budget, a significant increase in the General Sales Tax (GST) on hybrid and locally manufactured vehicles has been proposed, raising the tax from 8.5% to 25%. However, the Ministry of Industry and Production has expressed strong objections to the move, urging the government to reconsider.
In a formal letter addressed to the finance secretary and the chairman of the Federal Board of Revenue (FBR), the Ministry of Industry and Production has requested the withdrawal of the proposed 25% GST. The ministry argues that this tax increase is in direct violation of the auto industry development and export policy.
It highlighted that the federal cabinet had previously approved the Auto Policy 2021-26, which became effective from FY2021. This policy was designed to promote environment-friendly technology and included a proposal for an 8.5% sales tax on both domestic and imported hybrid vehicles. The policy also specified a 1% sales tax on battery electric vehicles with power below 50kW.
"The proposed tax hike to 25% contradicts the approved policy, which aims to foster the development and adoption of green technologies," the letter stated, adding that the sales tax on hybrid electric vehicles was also fixed at 8.5%.
It further emphasized that several leading auto manufacturers have already invested in the production of hybrid electric vehicles based on the assurances provided by the existing policy framework. More companies are planning similar investments in the near future.
The ministry warned that implementing a higher sales tax would jeopardize these current and future investments, potentially deterring companies from continuing their operations or expanding in Pakistan.
