Pakistan Pushes 1% GST for Electric Vehicles Instead

The Ministry of Industries and Production has opposed the International Monetary Fund proposal to impose 18% General Sales Tax on electric vehicles and has instead recommended a concessional 1% GST regime for New Energy Vehicles under Pakistan’s forthcoming automotive policy framework, according to a report published by The News International.

The matter was discussed during consultations between the visiting IMF delegation and officials of the Ministry of Industries regarding the future direction of Pakistan’s automotive sector policy and taxation structure.

According to government officials, Pakistan proposed the application of a 1% GST rate across multiple categories of New Energy Vehicles, including electric passenger vehicles, buses, trucks, tractors, pickups, light commercial vehicles, two-wheelers, and three-wheelers.

The ministry argued that hybrid vehicles are already benefiting from a reduced GST rate of 8.5% and maintained that electric vehicles should similarly receive concessional tax treatment in order to promote adoption, investment, and market expansion within the EV sector.

Officials further informed the IMF that imported electric vehicle parts are presently subject to only 1% GST, whereas locally manufactured EV components attract the standard 18% GST rate, resulting in significant refund accumulation and liquidity pressures within the domestic supply chain.

To resolve this disparity, the government proposed implementation of a uniform 1% GST structure applicable throughout the entire electric vehicle manufacturing and supply ecosystem.

The ministry additionally opposed the proposed five-year tariff rationalisation framework under the National Tariff Policy, which envisages a gradual reduction in customs duties to substantially lower levels by 2030.

Government representatives maintained that Pakistan should continue imposing comparatively higher tariff protection, ranging between 70% and 80%, on imports of both new and used vehicles, citing policy approaches adopted by countries including India and Bangladesh.

Pakistan has, however, already provided written commitments to the IMF regarding implementation of tariff reductions under the National Tariff Policy, aimed at reducing the weighted average applied tariff from 10.6% in FY25 to 7.4% by FY30.

According to the government’s projections, tariff reductions within the automotive sector, combined with broader National Tariff Policy reforms, are expected to reduce the weighted average tariff rate to below 6% by FY30.

Officials informed the IMF that the weighted average tariff applicable to the auto sector is projected to decline to approximately 5.99% by 2030.

The government further assured the IMF that tariff reforms and reductions would continue in accordance with Pakistan’s commitments under the IMF-supported economic programme.

Officials additionally stated that the proposed automotive sector policy is currently in advanced stages of finalisation and will be shared with the IMF prior to submission before the federal cabinet for formal approval.

The proposed framework also envisages gradual elimination of Additional Customs Duties and Regulatory Duties, alongside phased reductions in standard Customs Duty rates by FY30.