The International Monetary Fund (IMF) has put forward new conditions under Pakistan’s $7 billion loan program, with potential consequences for the country’s emerging electric and hybrid vehicle sector.
According to sources, the IMF has called for the withdrawal of sales tax exemptions on locally manufactured electric vehicles (EVs) and electric bikes. Under the proposal, these vehicles would be subject to the standard 18% General Sales Tax (GST) starting from the 2026–27 fiscal year.
Hybrid vehicles also under review
The IMF has also urged the government to eliminate tax incentives for locally assembled hybrid electric vehicles. These incentives were originally introduced to encourage the adoption of environmentally friendly transport.
Currently, locally manufactured hybrid vehicles are fully exempt from sales tax until June 30, 2026. After this deadline, hybrid vehicles up to 1,800cc are taxed at 8.5%, while those with engines up to 2,500cc face a 12.75% sales tax.
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Shift to normal tax regime
Sources said these demands were raised during discussions with the Ministry of Industries and Production. The IMF has reportedly asked for the removal of these exemptions from the Eighth Schedule of the Sales Tax Act, bringing electric and hybrid vehicles into the normal tax framework.
At present, locally produced hybrid vehicles and electric bikes benefit from sales tax exemptions under this schedule. The proposed changes would eliminate these privileges and apply standard taxation rules.
Potential impact on prices and demand
If the government accepts the IMF’s conditions, sales tax exemptions on locally manufactured electric and hybrid vehicles and electric bikes could end as early as next year. Analysts warn that such a move may lead to higher vehicle prices, reduced consumer demand, and possible setbacks to Pakistan’s efforts to promote cleaner and more sustainable transportation.