In the latest budget, there is a proposed significant increase in the General Sales Tax GST on hybrid and locally manufactured vehicles, raising it from 8.5% to 25%.
This proposal has sparked strong objections from the Ministry of Industry and Production, prompting the ministry to formally address the finance secretary and the chairman of the Federal Board of Revenue with a request to withdraw the proposed hike.
The Ministry of Industry and Production argued that the proposed 25% GST contradicts the Auto Policy 2021-26, which was approved by the federal cabinet and took effect from FY2021.
This policy was strategically crafted to encourage the adoption of environmentally friendly technologies, including an initial proposal of an 8.5% sales tax on both domestically produced and imported hybrid vehicles.
Additionally, the policy specified a 1% sales tax on battery electric vehicles with power ratings below 50kW.
“The proposed tax increase to 25% directly conflicts with the established policy, which aims to stimulate the growth and utilization of green technologies,” the ministry asserted in its letter. It emphasized that the 8.5% sales tax rate for hybrid electric vehicles was a crucial component of this policy framework.
Furthermore, the ministry underscored that numerous prominent auto manufacturers had already made substantial investments in the production of hybrid electric vehicles based on the assurances provided by the existing policy guidelines. Additionally, there are plans for further investments by other companies in the near future.
The ministry cautioned that implementing a higher sales tax rate could undermine these current investments and deter future commitments from automotive companies, potentially jeopardizing the sector’s growth and development in Pakistan.
This stance reflects concerns over the potential negative impact on industry stakeholders and the overall automotive market landscape.
