Proposal to raise GST on hybrid vehicles raises concerns among manufacturers

KARACHI: Local manufacturers of hybrid electric vehicles (HEVs) and plug-in hybrid vehicles (PHEVs) have expressed concern over a proposed increase in the general sales tax (GST) on these vehicles. The proposal suggests raising the GST rate from the current 8.5 percent to 18 percent, effective July 1.

Industry representatives noted that they had previously received indications from relevant government departments that the 8.5 percent GST rate would remain in place until June 30, 2026, coinciding with the expiration of the current auto policy, which includes various incentives for the sector.

An assembler highlighted that the proposed hike in sales tax could have a significant impact on vehicle pricing dynamics. In Pakistan's automotive market, the relative pricing of vehicles is a key factor influencing consumer demand. The assembler stated, “If hybrids lose their monetary advantage, the demand balance could shift.”

Manufacturers are concerned that any substantial change in tax incentives could affect both consumer preferences and future investment decisions. According to industry sources, if the price difference between conventional vehicles and hybrids becomes smaller, consumers may opt to return to traditional fossil fuel-powered vehicles.

The current auto policy, which is set to expire on June 30, 2026, has provided incentives that have supported the growth of the hybrid vehicle segment. The potential increase in GST is seen as a move that could undermine these gains and alter the competitive landscape of the local automotive market.

Stakeholders are closely monitoring the situation and have voiced their apprehensions regarding the impact of the proposed tax changes on the industry and on consumer choices.