The latest budget proposed a significant increase in the general sales tax (GST) on hybrid vehicles and local manufacturers, raising the tax from 8.5% to 25%. However, the Ministry of Industry and Production strongly opposed the move and urged the government to reconsider.
In an official letter to the Finance Secretary and Chairman of the Federal Board of Revenue (FBR), the Ministry of Industries and Production has asked for withdrawal of the proposed 25% GST. The ministry said that this tax hike directly affects the development and export policy of the automobile industry.
It shows that the Federal Cabinet has approved the Auto Policy 2021-26, which has been implemented since 2013. The policy is designed to promote environmentally clean technologies and proposes an 8.5% sales tax on domestic and foreign hybrid vehicles. The policy also imposes a 1% sales tax on battery electric vehicles with a capacity of less than 50kW.
“The proposed 25% tax increase is against the approved policy aimed at developing and introducing green technology,” he said, adding that the sales tax on hybrid electric vehicles has also been set at 8.5%.
He further pointed out that some leading car manufacturers have invested in the production of hybrid electric vehicles based on the guarantees provided in the existing policy framework.
The ministry warned that the implementation of higher sales tax would threaten current and future investment and prevent companies from continuing operations or expanding in Pakistan.
