The International Monetary Fund (IMF) has urged Pakistan to end the sales tax exemption currently granted to locally manufactured hybrid and electric vehicles and two-wheelers, according to media sources.

The IMF has recommended that, from the next fiscal year, the exemption be withdrawn and a standard sales tax rate of 18% be applied.

At present, locally produced hybrid vehicles benefit from a sales tax exemption under the Eighth Schedule. However, this exemption is scheduled to expire on 30th June 2026, according to official documents.

Currently, locally manufactured hybrid electric vehicles up to 1,800cc are subject to an 8.5% sales tax, while vehicles between 1,801cc and 2,500cc are taxed at 12.75% .

During discussions with the Ministry of Industries and Production, the IMF emphasised the removal of these vehicles and two-wheelers from the Eighth Schedule, recommending their inclusion in the standard tax regime.

If implemented, the change would end preferential tax treatment for locally manufactured hybrid and electric vehicles and two-wheelers from the next fiscal year.

This measure, if adopted, would substantially alter the tax structure for the local hybrid vehicle industry, which has previously benefited from reduced rates intended to promote cleaner and more energy-efficient transport in Pakistan.