HEV Sales Tax Reduced From 25% To 18% For Locally Manufactured Hybrid Cars.
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The federal government has officially reduced the sales tax on locally manufactured Hybrid Electric Vehicles (HEVs) with engine capacities up to 2,000cc from 25% to 18%, providing substantial fiscal relief to both local automakers and prospective buyers. The Finance Division formalized the change through S.R.O. 1525(1)/2026 on September 13, 2026, with immediate effect.The adjustment resolves months of uncertainty that followed the expiration of prior hybrid tax concessions at the end of June 2026 and the subsequent budget-driven spike to 25%. Industry experts, including Business Recorder Research Director Ali Khizar, noted that hybrid tax rates previously hovered between 8% and 12% before peaking in the budget. By establishing a stabilized 18% standard rate, the policy protects local hybrid assembly investments while complementing separate promotional regimes such as the 1% preferential sales tax tier reserved for fully electric vehicles (EVs).
The federal government has reduced the sales tax on locally manufactured hybrid electric vehicles (HEVs) with engine capacity of up to 2,000cc from 25% to 18%, offering some relief to buyers and the local hybrid vehicle industry.
The Finance Division issued S.R.O. 1525(1)/2026 on September 13, amending the existing sales tax notification. The new rate has taken effect immediately.
The amendment specifically excludes locally manufactured hybrid vehicles up to 2,000cc from the higher 25% sales tax rate previously applied under the relevant tax table. This effectively brings their sales tax down to the standard 18% rate.
The move follows several changes to the tax treatment of hybrid and electric vehicles. Before the latest budgetary changes, locally manufactured HEVs had benefited from lower sales tax rates, while the preferential regime expired at the end of June 2026.
According to Business Recorder Research Director Ali Khizar, the tax rate on HEVs had previously been around 8–12%, before increasing to 25% following the budget. The latest decision settles the rate at 18%.
The reduction could help lower the tax component of locally assembled hybrid cars and provide support to manufacturers producing fuel-efficient vehicles. It also creates a clearer tax position for the hybrid segment following months of uncertainty over the continuation of its previous concessions.
The decision comes as Pakistan is promoting new-energy and fuel-efficient vehicles while also seeking to expand local automobile manufacturing. However, the government continues to maintain separate tax treatment for fully electric vehicles, with certain locally manufactured EVs benefiting from a 1% sales tax regime under extended concessions.
