In a major policy shift under the proposed Finance Bill 2025–26, the government has agreed in principle to raise the sales tax rate on locally manufactured or assembled vehicles with engine capacities up to 850cc.

The prices of locally manufactured or assembled cars with engine capacities up to 850cc are set to rise, in effect from July 1.

This follows the government s in-principle decision to increase the sales tax rate from the current 12.5% to a range of 15–18% in the upcoming federal budget.

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At present, a reduced sales tax rate of 12.5% applies to locally produced or assembled motor vehicles with engine capacities up to 850cc.

However, under the proposed Finance Bill 2025–26, the Federal Board of Revenue (FBR) is expected to remove Entry No. 72 from the Eighth Schedule of the Sales Tax Act, 1990 — effectively ending the concessional tax regime for these vehicles.