The IMF has urged Pakistan to end sales tax exemptions on locally made electric vehicles and bikes, recommending the standard 18 percent GST from fiscal year 2026–27
By S.M. Inam
ISLAMABAD: Pakistan is facing renewed pressure from the International Monetary Fund (IMF) as new conditions tied to the country’s $7 billion loan program emerged, raising concerns about the future of its nascent electric and hybrid vehicle industry.
According to sources familiar with the matter, the IMF has called for the removal of sales tax exemptions on locally manufactured electric vehicles and electric bikes, proposing the imposition of the standard 18 percent General Sales Tax (GST) from the 2026–27 fiscal year.
The lender has also pressed for an end to tax relief on hybrid electric vehicles produced in Pakistan, which currently benefit from special exemptions designed to encourage cleaner transportation options. Hybrid vehicles enjoy full tax exemption until June 30, 2026, after which sales tax is applied at 8.5 percent for models up to 1,800cc and 12.75 percent for those up to 2,500cc.
The IMF’s recommendation would remove these preferential measures entirely, aligning hybrid and electric vehicles with the general GST framework. Officials said the demands were raised during discussions between IMF representatives and Pakistan’s Ministry of Industries and Production, with the lender emphasizing the need to eliminate the exemptions listed in the Eighth Schedule of the Sales Tax Act.
The proposed changes would effectively bring all locally manufactured electric and hybrid vehicles under the standard taxation system, potentially raising costs for consumers and slowing the sector’s growth. Industry experts warned that implementing these measures could have a considerable impact on pricing and consumer demand, undermining efforts to transition toward environmentally sustainable transport.
“Tax incentives have been crucial in making electric and hybrid vehicles competitive in the domestic market,” said one automotive analyst. “Removing them could stall the momentum and limit adoption at a critical stage for the industry.” The government has yet to formally respond to the IMF’s proposals.
However, the debate underscores the delicate balance Pakistan must navigate between meeting international financing conditions and sustaining domestic policies aimed at promoting clean energy and low-emission transport. As discussions continue, the future of the country’s electric and hybrid vehicle market hangs in the balance, with consumers and manufacturers closely watching policy decisions that could shape the industry for years to come.
