Pakistan Announces Sweeping Fiscal Overhaul with Environmental Focus

Strategic Insights -

The government of Pakistan has introduced significant tax measures and laws aimed at promoting environmentally friendly transportation and cracking down on unregistered businesses. The Federal Budget 2025-26 includes a uniform 18% sales tax on all small vehicles up to 850cc, while introducing the New Energy Vehicles Adoption Levy Act, 2025, to discourage the use of fossil fuel vehicles and promote electric and zero-emission alternatives.

Key Takeaways:

  • The government has imposed a uniform 18% sales tax on all small vehicles up to 850cc, ending previous exemptions and lower tax rates for this category.
  • The New Energy Vehicles Adoption Levy Act, 2025, imposes a levy on all internal combustion engine (ICE) vehicles-powered by petrol, diesel, CNG, or LPG, to discourage the use of fossil fuel vehicles and promote electric and zero-emission alternatives.
  • The levy will be collected like customs duty for imports and sales tax for locally produced vehicles, with exemptions applying to new energy vehicles (NEVs), export-bound vehicles, and those used by diplomatic or international organizations.
  • Revenue from the levy will be directed towards building EV infrastructure, offering adoption incentives, and running clean transport awareness campaigns.
  • The federal government also retains the authority to adjust levy rates or exempt specific categories in the future.
  • The budget includes stricter enforcement measures against tax evasion, targeting unregistered businesses with severe penalties to ensure compliance and widen the tax net.
  • The finance ministry has vowed to collect a significant amount of revenue from the new energy vehicles adoption levy, which will be used for promoting electric vehicles and reducing dependence on fossil fuels.

Statistics:

  • 18% sales tax will be imposed on all small vehicles up to 850cc.
  • The New Energy Vehicles Adoption Levy Act, 2025, aims to collect revenue from internal combustion engine vehicles powered by petrol, diesel, CNG, or LPG.
  • Revenue from the levy will be allocated towards building EV infrastructure, adoption incentives, and clean transport awareness campaigns.
  • The federal government has retained the authority to adjust levy rates or exempt specific categories in the future.
  • The finance ministry plans to implement stricter enforcement measures against tax evasion, targeting unregistered businesses with severe penalties.

Sources:

  • The Federal Budget 2025-26
  • The New Energy Vehicles Adoption Levy Act, 2025