Govt Likely to Hike Sales Tax on 850cc Cars to 18% in Upcoming Budget

The government is considering increasing the sales tax on locally manufactured and assembled motorcars with engine capacity up to 850cc from the current 12.5% to the standard rate of 18% in the upcoming 2025-26 budget. The Federal Board of Revenue (FBR) is reviewing a budget proposal to amend the Eighth Schedule of the Sales Tax Act 1990, which currently offers reduced tax rates for small cars. If approved, the FBR will remove entry number 72 of the schedule, subjecting these vehicles to the full sales tax rate.

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This proposed move is part of the government’s broader plan to enhance revenue collection by minimizing tax exemptions and preferential rates in the next fiscal year. Officials have also indicated that the FBR may allow the import of five-year-old used vehicles to offer alternatives for consumers. The overall objective is to align tax rates across various sectors with the standard sales tax rate from 2025-26 onwards.

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