The federal government is considering reducing the sales tax on hybrid electric vehicles (HEVs) from 25 percent to 18 percent, a move that could lower vehicle prices and encourage more people to switch to environmentally friendly transport.

According to sources, a summary proposing the tax reduction has been forwarded to the Finance Division for review. The proposal will require approval from the federal cabinet before it can be implemented.

Why is the tax being reduced?

The concessional sales tax on hybrid vehicles expired automatically on June 30, 2026, after the government chose not to extend the relief through the Finance Act 2026. As a result, hybrid vehicles became subject to the standard 25 percent sales tax under Schedule II of SRO 297(I)/2023.

Previously, hybrid vehicles benefited from a significantly lower sales tax of 8.5 percent, making them more affordable for consumers.

Impact on buyers and the auto industry

Officials believe the increase to 25 percent affected demand for hybrid vehicles, prompting the government to reconsider its tax policy. The proposed reduction to 18 percent is aimed at making hybrid vehicles more accessible while supporting Pakistan's shift toward cleaner and fuel-efficient transportation.

Industry experts say lower taxes could boost vehicle sales, reduce fuel consumption, and encourage investment in the country's growing green mobility sector.

If approved by the federal cabinet, the revised tax rate is expected to provide relief to buyers while helping Pakistan move closer to its environmental and sustainable transport goals.