Hybrid Vehicle Sales Tax Cut From 25% To 18%

The government has lowered the sales tax on locally produced hybrid electric vehicles (HEVs) with engine capacities of up to 2,000cc, reducing the rate from 25% to 18%. The move partially reverses the sharp tax increase imposed after earlier concessions expired in June.

The seven-percentage-point reduction has taken effect immediately. Before the concessions ended on June 30, 2026, eligible hybrid vehicles were subject to preferential sales tax rates ranging between 8.5% and 12.75%. Their expiry subsequently pushed some categories into the 25% tax bracket.

The decision comes as the government considers the proposed Automotive and Auto Parts Manufacturing Policy 2026–31. An inter-ministerial committee, in recommendations reported on September 9, suggested that conventional hybrid vehicles should receive the same sales tax treatment as internal combustion engine vehicles.

For battery electric vehicles, range-extended electric vehicles and plug-in hybrids, the committee proposed uniform treatment under the New Energy Vehicles Policy. This would include a 1% sales tax on the vehicles, their components and raw materials.

The latest reduction for locally manufactured hybrids was notified by the Finance Division through S.R.O. 1525(I)/2026, issued on September 13. The notification amends S.R.O. 297(I)/2023 by adding a proviso that removes locally manufactured HEVs up to 2,000cc from Table-II of the earlier notification.

The March 2023 notification had previously been amended through S.R.O. 370(I)/2024.

Separately, the Federal Board of Revenue announced on September 12 that the 1% sales tax regime for specified electric vehicles, along with the sales tax exemption on imports of their completely knocked-down (CKD) kits, would remain available until June 30, 2027.