Just a week after initial reports suggested a potential new tax on petrol and diesel vehicles, Finance Minister Muhammad Aurangzeb has confirmed its implementation in the federal budget for 2025–26. This new levy targets internal combustion engine (ICE) vehicles—both locally manufactured and imported—as part of the government’s strategy to increase revenue and promote environmentally friendly transportation.

What Is the New Tax?

The new levy is calculated as a percentage of a vehicle’s value. It applies to both manufacturers and importers and varies based on engine size and whether the vehicle is local or imported. The good news: the levy already includes all other taxes and duties, so there’s no need to calculate additional charges separately.

Who Pays What?

The levy is tiered according to engine capacity and vehicle type:

  • Small Engines (Under 1300cc):

    • Locally Manufactured & Imported: 1% of the vehicle’s price.

    • Example: For a car priced at Rs. 100,000, an additional Rs. 1,000 tax applies.

  • Mid-Range Engines (1300cc to 1800cc):

    • Locally Manufactured & Imported: 2% of the vehicle’s price.

  • Large Engines (Above 1800cc):

    • Locally Manufactured & Imported: 3% of the vehicle’s price.

  • Commercial Vehicles (Buses & Trucks):

    • Locally Manufactured & Imported: 1% levy applies, paid by the manufacturer.

What Does This Mean for Consumers?

Car prices are expected to rise slightly due to this levy. While the percentages may seem small, they can significantly impact higher-value vehicles. Manufacturers and importers will likely pass on the added costs to consumers, meaning pricier petrol and diesel vehicles.

This move signals a broader governmental push to shift the market toward greener alternatives, such as electric or hybrid vehicles. It remains to be seen how this policy will influence buying trends and automotive strategies in Pakistan going forward.