Special Correspondent
ISLAMABAD: Pakistan’s proposed automobile tax reforms, being promoted as part of a green and modern mobility transition, have raised serious concerns that the new policy may end up giving major tax relief to wealthy buyers of expensive New Energy Vehicles while ordinary citizens continue to face full taxation on small cars.
The emerging policy direction suggests very low sales tax on NEVs along with possible relief in Federal Excise Duty, Capital Value Tax and other related charges for qualifying electrified vehicles. However, small cars mostly purchased by salaried families, lower-middle-income households and first-time buyers continue to remain under full tax pressure.
Critics argue that such a structure would create a deeply unequal outcome. A family struggling to buy a basic commuter car would continue paying higher taxes while a buyer of a luxury electrified SUV or high-end plug-in model could receive generous concessions. This, they say, would not be seen as genuine climate reform but as a state-supported tax benefit for affluent consumers.
The concern becomes stronger when viewed in the context of Pakistan’s actual automobile market. The passenger NEV segment in the country is not mainly based on affordable family vehicles. It is largely concentrated in high-priced SUVs, premium crossovers and upper-end plug-in models. As a result, the biggest beneficiaries of tax incentives would not be workers, ordinary commuters or most middle-income families but buyers already able to spend far beyond the reach of average households.
At the same time, taxation on entry-level vehicles has moved in the opposite direction. The tax on small cars has already increased from 12.5 percent to 18 percent, making basic vehicle ownership even more difficult for families already hit by inflation and weak purchasing power. The small-car category remains the most realistic route into formal vehicle ownership for many households. When this segment is taxed heavily, affordability declines, financing becomes harder and more people are pushed out of the formal market.
Observers say this effectively narrows access at the lower end of the market while offering relief at the upper end. They warn that such a policy could worsen social inequality and weaken public confidence in the government’s green transition agenda.
The burden on ordinary motorists does not end at the showroom. Citizens using conventional vehicles also face rising fuel-related taxation and carbon-linked levies, which increase daily mobility costs. This means a citizen who cannot afford a tax-favoured NEV is also being asked to pay more to keep a petrol-powered vehicle on the road.
Analysts say the debate is therefore not simply about electric vehicles versus petrol vehicles. It is about who is being asked to bear the cost of the transition. Under the current direction, the burden appears to fall on ordinary users while the benefits may be captured by those able to afford expensive vehicles.
Supporters of NEV incentives maintain that such measures are necessary to reduce oil imports and modernize the auto industry. However, questions are also being raised over the foreign-exchange impact of the proposed approach. Industry-side estimates suggest that a small internal-combustion CKD package may cost around $3,000 while a comparable small battery-electric vehicle package may cost around $8,500. This creates an upfront foreign-exchange gap of roughly $5,500 per vehicle.
If a small internal-combustion car contributes around $300 to $400 per year to the fuel import bill, recovering the additional foreign-exchange cost of a small BEV could take nearly 13.8 to 18.3 years. Critics say this is not an immediate saving but a long and uncertain payback period for an economy that continues to face pressure on its dollar reserves.
The case becomes more complicated in the case of larger and more expensive vehicles. If high-end plug-in hybrids, range-extended vehicles and premium battery-electric models receive large tax concessions, the upfront foreign-exchange burden could increase further. In such a situation, the argument that the policy will reduce foreign-exchange pressure becomes less convincing.
Experts warn that a policy introduced in the name of saving foreign exchange may create larger outflows in the short and medium term. The expected fuel savings may arrive slowly and may not fully offset the initial import burden over the life of the vehicle. Future replacement battery imports could add another layer of foreign-exchange pressure.
Analysts, however, clarify that this does not mean Pakistan should abandon NEV promotion. Support for electric two-wheelers, rickshaws and practical urban mobility solutions can be justified because these segments directly serve ordinary users, small businesses and daily commuters. Such vehicles can reduce fuel use, lower operating costs and support cleaner urban transport.
They argue that the useful parts of the policy must not be used to defend a flawed passenger-car tax structure. If the government wants a fair and economically credible transition, it must stop treating all electrified vehicles as equally deserving of relief. A battery or plug-in system alone should not qualify a luxury vehicle for tax privilege.
The proposed concessions, they say, must be linked to affordability, price limits, local value addition and clear national economic benefit. Vehicles that remain too expensive for ordinary consumers and too import-intensive to provide timely benefit should not receive blanket relief.
The central principle, according to critics, is that public sacrifice must not be used to subsidize private luxury. A policy that keeps small cars fully taxed while making premium NEVs cheaper for upper-income buyers would be socially unfair and economically weak. They say such a structure would appear to be a class-biased subsidy dressed up as reform.
The government has therefore been urged to reconsider the passenger-car side of its NEV strategy before finalizing tax concessions. Any relief, experts say, should be tied to strict price caps, mass-market relevance, measurable local value addition and a transparent foreign-exchange test.
Pakistan needs cleaner mobility, but the transition must be fair. Lower- and middle-income citizens should not be forced to pay full taxes while the affluent are enabled to purchase premium electrified vehicles at subsidized rates.
