After a lot of wait and speculation, the National Assembly has finally approved the mini-budget, which has created trouble for the car industry.

If you remember, the government proposed several Federal Excise Duty (FED) and Sales Tax hikes for locally assembled and imported cars. Let us see the new taxes on cars (sales tax, FED and Regulatory Duty).

General Sales Tax on Hybrid and EVs Cars

The most notable amendment is that the Federal Board of Revenue will now charge 12.5 percent General Sales Tax (GST) on the import of Completely Built-Up (CBU) Electric Vehicles (EVs).

However, the GST on locally-manufactured Hybrid Electric Vehicles (HEVs) with up to 1,800cc engine displacement will be charged at a reduced rate of 8.5 percent, instead of the 12.5 percent that was recommended earlier in the Finance (Supplementary)Bill in 2021.

The GST rate on locally-manufactured HEVs with engine displacement between 1,801cc and 2,500cc will be 12.75 percent. The government has also amended the rates of the Federal Excise Duty (FED) on locally manufactured and assembled cars, SUVs, and commercial vehicles.

locally assembled hybrid cars:

• 8.5% on hybrid cars up to 1800cc
• 12.75% on hybrids from 1801-2500cc

CBU/imported electric vehicles: 

• An increase of GST to 12.5% from the previous 5%.

FED on Locally Assembled Cars

As per the revisions, FED at the rate of 2.5 percent will be charged on locally assembled vehicles with engine capacity up to 1300cc. Furthermore, 5 percent FED would be charged on vehicles with engine capacity between 1301cc and 2000cc and 10 percent FED on vehicles of engine capacity of 2001cc and above.

• 2.5% on 0-1300cc cars. It is pertinent to mention that FED on 0-1000cc was 0%.
• 5% on 1301-2000cc cars. Earlier, the duty on 1001-2000cc was 2.5%; however, the government has now changed the categories of engine size. 
• 10% on cars above 2000cc, which was 5% before the mini-budget.

New Regulatory Duties (RD) rates approved for CBU vehicles

Other than these amendments, the following are the new Regulatory Duties (RD) rates approved for CBU vehicles:

• RD on Internal Combustion Engine (ICE) vehicles with engine displacements above 850cc have been increased from 15 percent to 50 percent.
• RD on Hybrid Electric Vehicles (HEVs) with engine displacements between 1,500cc to 1,800cc increased from 15 percent to 50 percent.
• RD on EVs with battery-packs larger than 50 kWh has been increased to 27 percent.

The government has imposed these taxes on the car industry to curb the towering import bill and the overall number of imports within the car industry. However, these tax rates could also result in another wave of price-hikes, which is likely to hurt the demand for new vehicles significantly.