The local automobile sector has been a driving force of our economy for decades, generating employment, fostering other related industries, and catering to the transportation needs of millions. But the industry also continues to be affected by taxation, especially GST rates on vehicles. Effects high and ever-increasing GST rates on vehicles in Pakistan have played an important role towards affordability of vehicle, local manufacturing as well as imports patterns in the recent past (specially with the federal budget 2025-26).  

Understanding GST Rates on Vehicles 

A sales tax in Pakistan is known as the General Sales Tax (GST) being part of Federal Board of Revenue. Pakistan’s general sales tax rate is 18%. But lower rates are historically offered to the auto sector on certain categories to make them affordable and available for local assembly. 

Small cars (up to 850cc) were charged with a concessional GST of 12.50% in the budget before 2025-26. However, the new budget has merged them with a general rate and increased GST rates on vehicles in Pakistan for small units to 18 percent. This can be especially tough on darling entry levelers like Suzuki’s Alto, that don’t get any cheaper for budget buyers. 

There can also potentially be a higher effective tax rate for bigger cars, hybrids and imports such as customs duty (for imported vehicles)  and more recent taxes like the Climate Support Levy that was introduced in the 2025-26 budget. This duty is clearly targeted at the ICE vehicles and raises their prices both above local made as well as imported cars. 

How Much is the GST on Cars? 

As of December 2025: 

Small cars (up to 850cc): 

18% GST against current 12.5%. 

Most other locally manufactured/assembled vehicles: 

18% standard GST rate, potential variance for hybrids (prior to corrective changes, around the lower margin of about 8.5%, but proposals generally being modified back and forth). 

Imported vehicles:

 18% GST on CIF (Cost, Insurance, Freight) value + customs duties and other charges apply. 

These GST rates of vehicles alone can be rated as one of the highest in the region in terms of auto taxation for Pakistan, not to mention adding a burden due to additional environmental and carbon levies. 

How to Calculate GST on a Car? 

GST on a car is easy to calculate if you know the tax value: 

• Calculate the base value: For locally built automobiles, this is most commonly the ex-works price. For imports, it is the CIF value and customs duty. 

• Take the GST percentage rate: Now, calculate this: Base value × GST Percentage Rate (18% in most cases). 

• Add more taxes: Factor in federal excise duty (if applicable), income tax withholding and new try-ons like the 1-3% Climate Support Levy on ICE vehicles. 

Impact of High GST Rates  

Heavy GST imposed on vehicles in Pakistan directly affects the prices of vehicles for end users. The increase in small cars to 18 percent is expected to raise the prices of the Suzuki Alto model by PkR160,000-190,000 per unit. That makes new vehicles increasingly out of reach for middle and lower-income families looking for cheaper options. 

In general, car prices have increased for the following reasons: 

• Reduced rates being aligned with the standard 18%. 

• Environmental tax imposed on fuel-based cars. 

• Perpetual high luxury and large-degree tax (can be as much as 25% on cars priced above certain price brackets). 

As a result, demand for new cars has weakened within more price-sensitive groups, prompting buyers to either shift towards or delay used car purchases. 

Effects on Vehicle Imports 

Imports, both Completely Built-up Units (CBUs) and secondhand vehicles, are subjected to multiple taxation. The 18% GST is stacked on customs duties, regulatory duties, and additional customs duties. In the latest budget, a number of regulatory duties had been cut further to promote trade, but the high base of GST and new green levies made this ineffective for traditional vehicles. 

High taxes levy a penalty for the importation of luxury and premium vehicles, continue to fend off local assemblers to some degree. But under IMF-inspired liberalization, used car import restrictions are being relaxed, and this could inundate the market with cheaper alternatives to new cars produced locally. 

Sales have switched to EVs because they have less incentives and low tax compared to ICE high-taxed models. Over time, this could reshape import patterns in favor of greener technology. 

Broader Implications for the Auto Sector 

Pakistan’s auto industry has reached a crossroads. High GST rates on vehicles aim to boost government revenue and promote sustainability but risk stifling growth: 

• Decreased sales volumes for regional OEMs (original equipment manufacturers). 

• Thousands of people out of work at assembly plants and in dealership networks. 

• Less rapid take-up of new technology owing to affordability. 

• Sleeping on old, foreign cars instead of forex reserves. 

The positive fallout of these policies is that it pushes people towards EVs and hybrids. These are the ones in line with global trends and reduces the dependence on oil imports. 

Conclusion 

The high GST rates affect the price and imports of vehicles in Pakistan’s auto sector tremendously. Currently, consumers will have to pay a higher cost as GST rates for vehicles are largely set at 18%. But the industry is still also dealing with demand downturns and changing dynamics. For buyers and stakeholders, knowing how much GST on cars in Pakistan is and how to calculate GST on car are both equally important. 

As the industry adjusts to these changes, a balanced approach that will cater to both revenue requirements. It encourages affordable and green mobility is critical for sustainable expansion. For new GST rates on vehicles in Pakistan, kindly refer to FBR notifications.