Budget 2024-25: govt shifts to price-based car taxation, end of concessions for imported hybrids

The Pakistani government announced a shift in car taxation policy as part of its latest budget 2024-25 proposals. The new policy changes the basis for applying taxes on vehicles from just engine size to the price of the car.

According to Finance Minister Muhammad Aurangzeb, the new policy aims to rectify these inconsistencies by basing taxes on the car’s price, creating a more straightforward while also increasing tax revenues.

“Cars prices have gone up significantly. To tap the actual potential to increase taxes, this new proposal has been given,” he said in the budget announcement.

New taxes

• Upto 850 cc – 0.5% of the value
• 851cc to 1000cc – 1% of the value
• 1001cc to 1300cc – 1.5% of the value
• 1301cc to 1600cc – 2% of the value
• 1601cc to 1800cc – 3% of the value
• 1801cc to 2000cc – 5% of the value
• 2001cc to 2500cc – 7% of the value
• 2501cc to 3000cc – 9% of the value
• Above 3000cc – 12% of the value

For consumers, the new tax structure means that the cost of ownership for vehicles will be more closely aligned with the actual value of the car.

Luxury car buyers, who previously benefited from lower taxes due to smaller engines, will now face higher taxes reflecting the true market value of their vehicles.

An industry source said the impact will not be very significant as filers can adjust it as advance.

Auto sector analyst at AKD Securities Usama Rauf said this move will further increase the advance income tax, resulting in higher prices at the consumer-end.

“Nevertheless, I believe that the price increase won’t be significant enough to greatly impact demand for new autos,” he added.

Imported hybrid cars: end of concessions

In a related development, the government also proposed removing the concession on imported hybrid cars. This policy had been in place to encourage the adoption of hybrid technology and reduce environmental pollution.

However, with local manufacturing of hybrid vehicles now underway, the government believes it is time to level the playing field.

Indus Motor Company and Sazgar Engineering are making hybrid vehicles – Toyota Corolla Cross and Haval H6 in Pakistan.

However, an industry source said the government has also removed concessions on local manufacturing of hybrid vehicles.

Concessions removed on imported luxury electric cars

In another noteworthy change, the budget also includes the removal of concessions on imported luxury electric cars. Previously, these vehicles enjoyed tax benefits to promote the adoption of electric mobility and reduce carbon emissions.

However, it is seen that the affluent group in the country was purchasing imported luxury EVs.

“People who can buy expensive luxury electric can also pay tax on it,” said Aurangzeb in his budget announcement.

Promoting e-bikes

In an effort for climate change mitigation, the government is also planning to promote adoption of e-bikes. An allocation of Rs4 billion was made for e-bikes and another Rs2 billion for energy saver fans. However, Aurangzeb did not elaborate on how these allocations would be utilised.