Govt to Increase Sales Tax on Small Cars – Shocking 2025 Hike
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The prices of locally manufactured or assembled cars with engine capacities up to 850cc are set to rise from July 1, 2025. The government has agreed in principle to increase the sales tax rate from the current 12.5% to between 15% and 18% in the upcoming budget. This change will end the concessional sales tax regime by deleting entry number 72 from the Eighth Schedule of the Sales Tax Act 1990, as proposed in the Finance Bill 2025-26.
A Personal Reflection on the Rising Cost of Small Cars
If you’ve ever dreamed of owning a small car to ease your daily commute or provide affordable family transportation, recent news might hit close to home. The government’s plan to increase sales tax on small cars has left many prospective buyers anxious and uncertain about their budgets. As someone who has witnessed friends and family struggle with rising car prices, I understand the emotional and financial strain this decision can impose. This article dives deep into the shocking 2025 hike in sales tax on small cars, explaining its implications, the government’s rationale, and what it means for you.
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Summary of Sales Tax Changes on Small Cars
| Tax Aspect | Current Rate | Proposed Rate | Impact |
|---|---|---|---|
| Sales Tax on Small Cars (≤850cc) | 12.5% | 18% | Price increase, reduced demand |
| Withholding Tax on Larger Cars | Variable | Increased | Higher ownership costs |
| Import of Used Cars | Restricted | Allowed (up to 5 years) | Potential affordability relief |
What Is Happening? The Government’s Proposal Explained
The Federal Board of Revenue (FBR) is reviewing a proposal to increase the sales tax on small cars, specifically those with engine capacities up to 850cc. Currently, these cars enjoy a concessional sales tax rate of 12.5%, but the government plans to raise this to the standard rate of 18% starting July 1, 2025
Read expert analysis on car price trends at PakWheels.
Why the Change?
This move is part of a broader government effort to:
- Eliminate tax exemptions and bring all goods under uniform tax rates
- Boost revenue to support fiscal budgets
- Simplify the tax structure by amending the Eighth Schedule of the Sales Tax Act 1990
How Will This Affect Small Car Buyers?
Immediate Price Increase
The most direct impact will be a price increase on small cars. Popular models like the Suzuki Alto and other 850cc vehicles will become more expensive, potentially pushing them out of reach for many middle- and lower-income buyers
Affordability Concerns
- The small car price increase will add financial pressure on families relying on budget-friendly vehicles.
- This could reduce demand in the small car segment, affecting both consumers and manufacturers
Possible Relief Measures
To offset the impact, the government is reportedly considering easing import restrictions on used cars up to five years old, providing an alternative for buyers seeking affordability
The Bigger Picture: Sales Tax Increase Beyond Small Cars
While small cars are the focus, the government is also reviewing tax hikes for larger vehicles:
| Engine Capacity | Current Withholding Tax (WHT) | Proposed Changes |
|---|---|---|
| 1,300cc–1,600cc | 2% | Possible increase |
| 1,601cc–1,800cc | 3% | Possible increase |
| 1,801cc–2,000cc | 5% | Possible increase |
| 2,001cc–2,500cc | 7% | Possible increase |
| 2,501cc–3,000cc | 9% | Possible increase |
| Above 3,000cc | 12% | Possible increase |
This reflects a broader government strategy to raise vehicle-related taxes overall
Key Highlights and Takeaways
- Sales tax on small cars (up to 850cc) will rise from 12.5% to 18% in 2025.
- This change will likely increase the small car price increase and reduce affordability.
- The government aims to simplify tax laws by removing exemptions in the Sales Tax Act 1990.
- Potential easing of import rules for used cars could provide some relief.
- Larger cars will also face higher withholding taxes, increasing overall vehicle ownership costs.
Learn more about the Sales Tax Act 1990 on the official FBR website.
Conclusion: Navigating the Shocking 2025 Sales Tax Hike on Small Cars
For more updates on tax policies and automotive news, visit Alsyedblogs Latest News.
The government’s decision to increase sales tax on small cars marks a significant shift in Pakistan’s automotive market. While aimed at boosting revenue and simplifying tax structures, this move will undoubtedly impact affordability and consumer choices. Buyers must stay informed and consider their options carefully, including the possibility of purchasing before July 2025 or exploring used car imports.
At Alsyedblogs, we are committed to keeping you updated with the latest developments and helping you make informed decisions in this changing landscape. Stay tuned for more insights and expert analysis.
FAQ Section
When will the new sales tax on small cars take effect?
The new rate is expected to apply from July 1, 2025
Which cars are affected by this tax hike?
Locally manufactured or assembled small cars with engine capacities up to 850cc
Will used cars be affected by this tax increase?
The tax hike targets new and locally assembled cars, but the government may allow import of used cars up to five years old to ease affordability
How much will car prices increase due to this tax?
Prices could increase by several hundred thousand PKR, depending on the model and tax rate changes
What should buyers do now?
If planning to buy a small car, it may be wise to purchase before the tax hike takes effect to avoid higher prices
