Finance Committee Approves Higher ICT Vehicle Token Tax

The National Assembly Standing Committee on Finance and Revenue has approved a revised token tax framework for motor vehicles registered within the Islamabad Capital Territory (ICT), introducing a value-based taxation mechanism aimed at substantially increasing annual revenue collections.

The proposal was approved during the committee’s review of budget-related taxation measures, where government officials informed members that Islamabad’s existing token tax structure had remained unchanged since 2019 and was considerably lower than comparable rates applied in other jurisdictions.

Under the newly approved framework, annual token tax will no longer be determined solely on the basis of engine capacity. Instead, the tax liability will be calculated as a percentage of a vehicle’s invoice value. Vehicles with engine capacities ranging from 1,001cc to 2,000cc will be subject to an annual token tax of 0.25% of invoice value, while vehicles exceeding 2,001cc will attract a rate of 0.35%.

According to projections presented to the committee, a vehicle valued at approximately Rs5.2 million within the 1,001cc to 1,300cc category would incur an annual token tax liability of around Rs13,000. Under previous valuation benchmarks, similar vehicles valued near Rs1 million would have generated a tax liability of roughly Rs2,500, compared with the existing fixed annual charge of Rs1,500.

For vehicles falling within the 1,301cc to 1,500cc category, the revised annual tax burden is expected to be approximately Rs16,250. Vehicles with engine capacities between 1,501cc and 2,000cc would be subject to an estimated annual token tax of around Rs20,000.

The revised structure imposes significantly higher liabilities on larger vehicles. Motor vehicles within the 2,001cc to 2,500cc category are expected to pay approximately Rs35,000 annually, while vehicles exceeding 2,500cc engine capacity would be liable for annual token tax of nearly Rs70,000.

Government representatives informed the committee that the revised regime is intended to increase annual token tax revenue in Islamabad from approximately Rs3.9 billion to nearly Rs5.2 billion.

Officials further noted that Punjab has already adopted a comparable value-based token tax framework for Fiscal Year 2026-27, applying rates of 0.3% for vehicles up to 2,000cc and 0.4% for higher engine capacity categories. In contrast, Sindh, Khyber Pakhtunkhwa, and Balochistan currently continue to impose fixed token tax rates determined primarily by engine capacity classifications.

During deliberations, several committee members expressed concerns regarding the magnitude of the proposed increase and questioned whether affordability considerations had been adequately balanced against revenue objectives. Members also sought clarification regarding the basis for the projected increase in tax collections.

In response, government officials argued that substantial increases in vehicle prices over recent years, coupled with the absence of revisions since 2019, had rendered the existing taxation framework outdated and inconsistent with prevailing market values.

Despite reservations raised by some lawmakers, the committee approved the proposal, clearing the way for implementation of the revised ICT token tax regime from the upcoming fiscal year.