KARACHI: Pakistan’s automobile industry is bracing for a potential slowdown in sales as the government considers imposing an 18% sales tax across all vehicle categories, a move expected to significantly increase prices and weaken consumer demand, industry officials said.
The proposed tax regime would apply to all vehicles, including electric vehicles, plug-in hybrid electric vehicles, range-extended electric vehicles, hybrids and conventional petrol-powered cars, according to industry sources. The measure would remove much of the tax advantage previously enjoyed by electric and hybrid technologies, leading to substantial retail price increases.
Market estimates suggest prices of EVs, PHEVs and REEVs could rise about 17%, while hybrid vehicles may see increases of roughly 10%.
Industry officials said the additional tax burden would likely be passed on to consumers, resulting in immediate showroom price increases once the measure takes effect.
Higher prices are expected to make vehicles less affordable at a time when household purchasing power remains under pressure and auto financing costs remain elevated.
“The increase in vehicle prices will inevitably affect demand. Pakistan’s automobile market is highly price-sensitive, and double-digit price increases typically lead to lower sales volumes,” said an auto analyst.
The analyst added that electrified vehicle categories are likely to be hit hardest because consumers often justify higher upfront costs through tax incentives and lower operating expenses.
The proposed measure comes as the auto sector continues to recover from a prolonged downturn caused by high interest rates, import restrictions and weak consumer sentiment. Industry experts warned that while the move could generate additional tax revenue for the government, it may slow growth in automobile sales and undermine efforts to promote cleaner transportation technologies.
“The policy may boost government revenues in the short term, but it risks reducing overall vehicle demand and slowing the transition to electric mobility,” the analyst said.
Automobile manufacturers, dealers and investors are awaiting the release of the federal budget and finance bill for detailed implementation guidelines and confirmation of the proposed tax structure. Market participants expect the announcement to have a direct impact on vehicle pricing strategies, sales forecasts and the outlook for Pakistan’s automobile sector in fiscal year 2027.
In April 2026, sales of cars, light commercial vehicles, vans, jeeps, and electric vehicles reached 22,000 units, a 108% jump compared to the same month last year, according to PAMA data.
For the first ten months of fiscal year 2026, total sales rose 49% to 166,100 units. The growth was mainly due to a recovery in buying activity, continued strong auto financing, and solid demand across key vehicle segments.
