The federal government has exempted locally manufactured hybrid electric vehicles with engine capacities of up to 2,000cc from sales tax, providing greater clarity to a segment that has faced uncertainty over its applicable tax regime.
The decision is expected to provide some relief to manufacturers and consumers in the local hybrid vehicle market while also shaping the broader debate around Pakistan’s transition towards electric mobility.
Sales Tax Exemption Takes Effect
The Ministry of Finance has amended the relevant sales tax rules through a notification covering locally manufactured hybrid electric vehicles with engine capacities of up to 2,000cc.
The amendment takes immediate effect and provides sales tax relief to hybrid vehicles that fall within the specified engine-capacity limit.
The move gives manufacturers greater clarity on the tax treatment of locally assembled hybrid vehicles at a time when the automotive sector is awaiting further policy direction.
Auto Parts Industry Welcomes Decision
Aamir Allawala, former chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), welcomed the government’s decision.
“Parts manufacturers welcome this announcement as it provides much-needed clarity for the hybrid vehicle segment,” he said.
However, Allawala also raised concerns over the longer-term implications of the National Tariff Policy 2025-30 and the proposed auto policy for local parts manufacturers.
PAAPAM Seeks Stronger Industrial Policy
Allawala called for Pakistan’s auto policy to place greater emphasis on job creation, domestic manufacturing and a managed transition towards electric vehicles.
He urged the government to maintain at least 35% customs duty or Federal Excise Duty on localised auto parts to protect domestic production.
According to him, weakening tariff protection could put significant pressure on local manufacturers and potentially force some businesses to shut down.
250,000 Jobs at Risk, Industry Warns
Allawala warned that weaker protection for domestic parts manufacturing could threaten around 250,000 jobs across the industry.
He also estimated that a decline in local manufacturing capacity could increase Pakistan’s annual vehicle import requirements by approximately $2 billion.
The concern reflects the wider challenge of balancing lower tariffs and greater consumer choice with the need to maintain domestic manufacturing capacity and employment.
Equal Tariff Protection Sought for EV Parts
PAAPAM is also seeking equal tariff protection for localised parts used in conventional vehicles and electric vehicles.
The association argues that domestic manufacturers should not face significantly different competitive conditions depending on whether components are supplied for internal-combustion, hybrid or electric vehicles.
Such protection, according to the industry, would help local manufacturers participate in the transition towards cleaner vehicle technologies rather than being displaced by imported components.
National Tariff Policy Raises Concerns
Allawala criticised the proposed 15% peak tariff cap under the National Tariff Policy 2025-30, arguing that the measure could expose domestic manufacturers to intense competition from imported parts.
The auto parts industry fears that rapid tariff reductions without sufficient safeguards could weaken local industrial capacity and increase reliance on imports.
PAAPAM has warned that greater import dependence could also place additional pressure on Pakistan’s current account, particularly if local manufacturing and value addition decline.
Hybrid Tax Relief Comes Amid Auto Policy Debate
The sales tax exemption for locally manufactured hybrid vehicles up to 2,000cc comes as Pakistan’s automotive sector continues to navigate changes in taxation, tariffs and its broader transition towards electric mobility.
While the tax relief provides clarity for the hybrid segment, the parts industry is calling for a policy framework that simultaneously supports consumers, vehicle manufacturers and domestic component producers.
The balance between affordable vehicle technology, industrial protection, employment and the shift towards electric vehicles is likely to remain a key issue as Pakistan finalises its future automotive policy.