New budget to provide tax relief for electric vehicles, carbon levy likely on conventional vehicles

The federal government has prepared a plan to provide tax relief to eco-friendly electric vehicles in the budget for the upcoming fiscal year 2026-27.

According to sources, it is proposed to keep the customs duty on motors, batteries and other parts for the local production of electric vehicles at only 1 percent, while the sales tax has also been recommended to be kept at 1 percent.

A complete exemption in federal excise, capital value tax and withholding tax has also been proposed.

On the other hand, there is a plan to impose a carbon levy on conventional petrol and diesel vehicles. It is proposed to impose a levy of 10 to 19.5 percent on vehicles larger than 2000 cc.

The government aims to promote electric vehicles and discourage conventional vehicles. This measure is estimated to generate more than Rs 142 billion in revenue in 5 years.

It is proposed to maintain the usual taxes on hybrid vehicles.

All these proposals are subject to the approval of the IMF.