IMF demands 25% sales tax on imported electric vehicles

KARACHI: The International Monetary Fund (IMF) has pushed back against a proposed reduction in sales tax on imported electric vehicles, demanding the rate be set at 25 percent rather than the 1 percent floated by Pakistani authorities, sources said Wednesday.

The fund classified imported EVs as luxury goods despite their environmental credentials, opposing any tax concession on the vehicles, sources said.

The development comes as Prime Minister Shehbaz Sharif has directed officials to protect jobs in domestic industries ahead of the upcoming federal budget.

The government is considering a package of relief measures for the local auto manufacturing sector in the next fiscal year. Raw material imports for the domestic auto industry could be taxed at just 1 percent, while import duties on parts used to manufacture locally assembled vehicles may be halved from 10 percent to 5 percent.

Taxes on parts imported for use by the domestic auto industry could also be reduced from 20 percent to 10 percent.

Local automakers would be required to pass 62 safety and standards tests under the proposed framework, sources added.

On imported jeeps, the government is considering a modest near-term concession reducing the tax rate by 2 percentage points from the current 50 percent in the upcoming budget. Over the next five years, that rate could be brought down further to 40 percent, sources said.

In 2020, the government approved a plan to support electric vehicles (EVs). This plan allowed lower taxes (customs duties) on imported parts for electric two- and three-wheelers, as well as on fully built electric two- and three-wheelers brought in by manufacturers. It also covered parts for electric trucks and buses. These tax breaks were added to the Customs Act in 2020.

In 2021, the government extended these tax breaks until June 30, 2026. They also added light commercial vehicles and vans to the list of vehicles that could get these benefits.

Now, a new proposed law in 2026 will update the rules to match what the 2021 policy promised. Under this change, the government will continue to offer lower customs duties on fully built electric vehicles until June 30, 2026. For two- and three-wheelers, a manufacturer can bring in up to 200 fully built units, with no more than 10 of the same model. These vehicles must be approved by the Engineering Development Board under the 2020 EV policy.