PM okays 1% sales tax on battery Evs

ISLAMABAD:

Prime Minister Shehbaz Sharif on Tuesday approved a reduction in the sales tax rate to 1% only for local and imported Battery Electric Vehicles and agreed to substantially cut import taxes under a new five-year auto policy, which would substantially reduce prices of both conventional and new energy vehicles.

After months-long discussions, the premier approved the final policy draft that would now be presented to the International Monetary Fund (IMF) for approval before the federal cabinet gives its nod. Following the IMF and cabinet approval, the government will present a new bill in parliament to give effect to these tax rates.

The final draft was presented to the prime minister after it was endorsed by a committee led by Law Minister Azam Nazir. However, PM Sharif also approved a 2% to 10% Internal Combustion Engine (ICE) levy to raise an estimated Rs232 billion over five years to incentivise the billionaire-club of car assemblers to increase exports.

According to the new automotive and auto parts policy 2026-31 draft, the PM decided to divide new energy vehicles (NEVs) into three categories of Range Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs) and Battery Electric Vehicles (BEVs). Hybrid electric vehicles (HEVs) and ICE conventional vehicles will be treated equally in terms of duties and taxes.

Subject to the IMF's approval, the PM agreed to reduce the rate of sales tax to 1% on BEVs, 6% on REEVs and 9% on PHEVs for both locally assembled and imported vehicles. Likewise, for NEVS, there will be reduced tariff of 5% for the first two years of policy on import of small electric vehicles of less than $15,000 value (Rs4.2 million) and reduced tariff of just 1% on EV-specific non-localised parts' import in CKD form.

The premier once again endorsed enhancing the credit limit for NEV financing from Rs3 million to Rs10 million with tenor increased from three years to five years. It was decided that ICE vehicles above 2,000cc and NEVs exceeding the value of $75,000 would be charged higher rates of federal excise duty to discourage their use.

According to the approved policy draft, for all types of ICE cars and SUVs, the customs duty will be 15% in the year 2031 with no additional or regulatory duty. But in the case of NEVs, the customs duty will be 1% for prime movers, trucks, dumpers and passenger vehicles. For 4W and other NEV categories, the rate will be 15% for completely built units.

Price impact

As a result of the new policy, the local Suzuki Alto price of Rs3.2 million would come down to Rs2.845 million in this fiscal year because of 15% tax on CKD and 18% sales tax. But the reduction for NEV is substantial in the same category, where the price will come down from Rs4 million to Rs2.7 million for Wuling Bingo BEV.

The policy will also result in a reduction in the Suzuki Cultus price from Rs4.3 million to Rs3.8 million in the first year, but the comparable BEV will see a reduction from Rs5.3 million to just Rs3.6 million within a year. These prices will go down further as the reduction in customs duty takes effect during the five-year period.

According to the policy draft, the Yaris 1496cc price will go down from Rs6 million to Rs5.3 million and the comparable BEV Baojun Yep Pulse price will come down from Rs6.3 million to Rs5 million.

Likewise, the price of Kia Sportage will decrease from Rs12.2 million to Rs11.1 million and the price of comparable Haval AWD PHEV will fall from Rs12.9 million to Rs11.1 million in the first year.

According to the policy draft, the MG HS ICE price will go down from Rs9.5 million to Rs9.2 million in the first year and the price of comparable PHEV will drop from Rs10.3 million to Rs9 million.

The Toyota Fortuner price is projected to go up from Rs20.5 million to Rs21.7 million due to the imposition of new 5% FED and 10% ICE levy. But the price of a comparable RAV PHEV will go down from Rs23.3 million to Rs18.3 million.

Exports

The policy sets a $6 billion export target, but the cost of export will be paid by those ordinary citizens who buy new ICE vehicles. The government will recover an estimated Rs232 billion from consumers in five years and distribute it among car assemblers.

An exporter will get 5% compensation of the net B value of exports on the base value of exports and the incentive will increase to 10% on incremental exports.

The government has decided that failure to meet minimum export targets by the manufacturers will result in a penalty equal to an amount which will be a percentage of the annual production value, ranging from 1% to 3%.

Failure to meet export targets for two consecutive years will result in cancellation of the manufacturing certificate, according to the draft policy. To fund export incentives (a revenue-neutral DLTL scheme), an automotive development levy on all ICE vehicles above 1,000cc has been proposed.