Pakistan likely to hike GST on local cars to 18% under IMF-backed budget

Pakistan will likely raise the general sales tax (GST) on locally assembled four-wheel vehicles with engine capacities of 850cc and above to the standard 18% from the existing concessional rate of 12.5%, in a move driven by the International Monetary Fund’s (IMF) fiscal reform agenda, a top official confirmed to Nukta.

The increase — set to be announced in the federal budget for fiscal year 2025-26 on June 10 — will directly impact popular small and mid-sized cars, largely dominated by Japanese giants like Suzuki, Honda and Toyota, and rising Chinese entrants.

The 5.5 percentage point hike is expected to widen the price gap between locally manufactured and imported vehicles, as well as reduce demand in the price-sensitive middle-income segment.

The tax change is part of a broader policy shift to eliminate reduced tax rates and exemptions under the Sales Tax Act of 1990. The Federal Board of Revenue (FBR) will scrap Entry No. 72 of the Eighth Schedule, which currently allows for the lower 12.5% rate on such vehicles.

“This is a revenue-maximizing measure under the IMF framework,” official said adding, “All sales tax concessions are under review as the government aligns towards a unified 18% standard rate from next fiscal year.”

The move underscores Islamabad’s commitment to meeting its fiscal targets under the new Extended Fund Facility, and is aimed at boosting tax revenues without introducing new taxes outright.

While auto manufacturers are bracing for a likely dip in consumer demand, industry insiders warn that higher costs could hit local assemblers hard, particularly as they compete with used car imports and electric vehicle ambitions pushed by China.