Proposed tax concessions for plug-in hybrid electric vehicles (PHEVs) could reduce government revenue by around Rs230 billion over five years, according to an estimate by an auto industry expert.
The assessment is based on a projected market volume of 150,000 new-energy vehicles (NEVs), along with current vehicle prices and applicable tax structures.
The potential revenue impact comes as the government considers changes to the taxation framework for different categories of new-energy vehicles, including range-extended electric vehicles (REEVs) and PHEVs.
PHEVs Could Receive Lower GST and Tax Exemptions
Under the proposed changes, GST on range-extended electric vehicles would increase from 1 percent to 6 percent, potentially generating additional revenue for the government.
At the same time, GST on PHEVs would be reduced from 18 percent to 9 percent.
The proposal would also provide PHEVs with exemptions from federal excise duty (FED) and capital value tax (CVT).
According to the auto industry expert, the additional revenue generated through the higher GST rate on REEVs would not be sufficient to compensate for the revenue loss arising from the proposed PHEV concessions.
PHEV Tax Changes Could Reduce Revenue by Rs230bn
The assessment estimates that the combined measures could reduce government revenue by approximately Rs230 billion, equivalent to around $821 million, over a five-year period.
The estimated revenue loss would primarily result from the lower GST rate on PHEVs and the proposed removal of FED and CVT.
These taxes currently contribute to government revenue from vehicle sales, meaning changes in the applicable rates and exemptions could have a significant impact on collections if PHEV sales expand as projected.
Government Weighs EV Adoption Against Fiscal Impact
The proposed tax concessions could make PHEVs more affordable and potentially support the wider adoption of new-energy vehicles in Pakistan.
PHEVs can operate using both electric power and an internal combustion engine, while REEVs use an electric drivetrain with an engine or generator serving to extend driving range.
Supporters of incentives for such technologies may view lower taxation as a means of encouraging cleaner mobility and accelerating the development of Pakistan’s new-energy vehicle market.
However, the estimated Rs230 billion revenue impact highlights the fiscal trade-off facing policymakers.
NEV Policy Faces Revenue and Environmental Considerations
The proposed changes place two policy objectives alongside each other: encouraging the transition towards cleaner transport technologies and maintaining government revenue from vehicle taxation.
The industry assessment suggests that policymakers will need to consider the potential growth in PHEV and REEV adoption alongside the impact of tax concessions on the national exchequer.
With the government reviewing the taxation structure for different categories of new-energy vehicles, the final policy design will determine how incentives, environmental objectives and fiscal considerations are balanced.