Islamabad: Pakistan and the International Monetary Fund (IMF) are in the concluding phase of negotiations concerning the federal budget for the fiscal year 2026–27, with an agreement on key fiscal targets anticipated soon. The discussions coincide with the government presenting a draft of its five-year auto policy (2026–2031) to the IMF, which emphasizes the advancement of electric vehicles within the country’s transportation sector.
Notably, the IMF has suggested imposing an 18 percent general sales tax (GST) on electric vehicles, whereas Pakistan advocates for a much lower rate of 1 percent. The government argues that maintaining minimal taxation is crucial to facilitate the adoption of new energy vehicles and accelerate the transition to electric mobility.
The proposed policy also contemplates reduced taxes for various types of electric vehicles, including three- and four-wheelers, motorcycles, buses, trucks, pickups, double-cabin vehicles, and tractors. Furthermore, Pakistan has proposed lowering tariffs in the automotive sector to 6 percent by 2030 as part of comprehensive reforms aimed at enhancing local manufacturing, boosting exports, and increasing employment opportunities.
The draft policy outlines a vision to modernize the automotive industry and pivot it towards a technology-driven and export-oriented model. It also addresses shortcomings of previous policies and introduces new regulatory frameworks designed to strengthen the sector. Pakistan aims to establish the auto industry as a globally competitive manufacturing hub by 2031.
The automotive sector faced significant challenges between 2022 and 2024 due to economic instability, inflation, and import restrictions, which caused a sharp decline in production. Meanwhile, the IMF has imposed 11 new conditions on Pakistan, including regular increases in electricity and gas prices, elevated tax targets, and extensive structural reforms.
These conditions are part of Pakistan’s efforts to meet fiscal benchmarks under its ongoing IMF program, which demands enhanced revenue mobilization and reforms across energy, taxation, and governance sectors. The IMF has set a petroleum levy collection target of Rs1.727 trillion for the upcoming fiscal year, substantially increasing the financial burden on consumers through higher fuel-related charges.
Additionally, the Fund has established a Federal Board of Revenue (FBR) tax collection target of Rs15.267 trillion, supported by proposed supplementary measures amounting to Rs430 billion to achieve this goal. Of these measures, Rs215 billion are expected to be raised through new taxes, while Rs115 billion would result from enforcement actions and improved compliance efforts.
