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The Ministry of Industries and Production has raised serious concerns over the proposed hike in taxes on hybrid and electric vehicles in Budget 2024-25. The ministry called it a violation of export and auto industry development policies. As per media reports, the concerns were expressed in a letter to the Finance Division and Federal Board of Revenue (FBR).

Taxes and Local Auto Industry 

“The sudden increase in sales tax, from the current 8.5% to 25%, directly contradicts the Auto Industry Development and Export Policy (AIDEP) 2021-26,” the letter stated, noting that the sales tax on electric vehicles below 50KwH battery is 1% and hybrid electric vehicles (HEVs) at 8.5%. “This policy was designed to accelerate the adoption of these technologies,” the letter emphasized.

The letter underscored the significant investments made by renowned auto manufacturers, such as Toyota, Hyundai, and Sazgar, in the production of HEVs under the AIDEP. It also noted the future plans of other companies, including Honda, Suzuki, and Kia, to enter the segment. “The imposition of higher taxes without consultation will not only impact existing investments but also deter future ones in HEV technology,” the letter warned.

“This move also undermines the objectives of National Climate Change Policy and Renewable Energy Policy,” the letter mentions, adding, “It is requested to reverse the sales tax to 8.5% as defined in the AIDEP 2021-26.”

FBR Chairman Assurance 

Meanwhile, FBR has assured the Federal Finance Committee that it will review the omission of incentives for the production of HEVs locally. The FBR chairman gave the assurance to the Senate Standing Committee on Finance, chaired by Senator Saleem Mandviwalla, to review Finance Bill 2024.  

The Indus Motor Company (IMC) chief executive told the committee that the auto sector has invested $100-150 million in the manufacturing of hybrid and electric vehicles in Pakistan under the AIDEP 2021-26, and now suddenly, the government has withdrawn the incentives allowed under Article 73 of Schedule 8th.