Govt to review tax relief for hybrid EVs

Pakistan's automobile industry, shaped largely by fiscal incentives over the past decade, may be approaching another pivotal moment as the government is going to review tax concessions for hybrid and plug-in hybrid vehicles under the new energy vehicle (NEV) framework in the upcoming budget.

Industry stakeholders say the tax policy has historically been the single most influential factor driving investment flows, model launches and consumer demand. "Pakistan's auto industry has effectively grown through policy design," said a senior executive at a local automobile assembler. "When tax structures change, the market direction changes with them."

The transformation of the industry accelerated under the Automotive Development Policy (ADP) 2016-2021, which aimed to attract new investment, expand localisation and break the long-standing dominance of three established automakers. Under the policy, duties on non-localised parts were reduced to around 10%, while duties on localised parts were cut to roughly 25%, compared with about 50% previously. New entrants were also granted a five-year tariff protection window.

The incentives triggered a fresh wave of investment from global automakers, particularly Korean and Chinese brands. Industry estimates suggest that nearly 15 new players committed investments of about $1.169 billion, with realised investment exceeding $1 billion as assembly plants, dealership networks and vendor ecosystems expanded across the country. Vehicle sales rose alongside the investment cycle. Passenger car sales increased from roughly 181,000 units in FY16 to more than 216,000 units in FY18 before eventually peaking near 234,000 units in FY22.

"The ADP period reshaped the industry's structure," said an analyst at a Karachi-based brokerage house. "New brands entered the market, SUVs became more prominent and the supplier ecosystem expanded significantly." The next policy phase came through the Automotive Industry Development and Export Policy (AIDEP) 2021-2026, which shifted focus from import substitution to exports, technological advancement and sustainability. Within this framework, duties on hybrid-exclusive parts were set at 4%, plug-in hybrid parts at 3% and EV components at 1%. Meanwhile, sales tax on hybrid electric vehicles (HEVs) and plug-in hybrids (PHEVs) remained at 8.5%. Industry executives say the structure helped encourage automakers to introduce electrified technologies while keeping vehicles relatively accessible in a price-sensitive market. "Tax differential played a key role in enabling hybrid adoption," said a senior executive at an auto assembler. "Without that advantage, the price barrier becomes much harder for consumers."

Pakistan's electrification roadmap is closely tied to the National Electric Vehicle Policy, which targets 30% of passenger vehicle sales to be electric by 2030. To support this transition, EVs benefit from a significantly lower sales tax of 1% along with reduced duties on charging infrastructure and related components. However, the policy environment is now undergoing recalibration. Industry sources say proposals to increase sales tax on HEVs and PHEVs from 8.5% to 18% could substantially alter the vehicle pricing dynamics. "In Pakistan's auto market, the relative price positioning determines demand," said an auto sector analyst. "If hybrids lose their fiscal advantage, the demand balance could shift."