In a move expected to significantly impact Pakistan’s auto industry and consumers alike, the federal budget for 2025–26 proposes an increase in the General Sales Tax (GST) on locally assembled small-engine vehicles. If approved, this change will raise the GST on cars with engine capacities up to 850cc — such as the popular Suzuki Alto — from 12.5% to the standard 18%.
What the Proposal Entails
According to sources within the Federal Board of Revenue (FBR), the reduced GST rate currently applicable to small-engine cars is set to be eliminated by deleting the corresponding entry from the Eighth Schedule of the Sales Tax Act. This revision will bring small cars under the standard 18% GST slab, aligning them with other consumer goods.
How This Affects Car Prices
Using ex-factory price data from Pak Suzuki provided in early 2025, the hike in GST could increase the price of a Suzuki Alto by anywhere between Rs. 120,000 to nearly Rs. 180,000, depending on the variant. These out-of-pocket increases will likely burden budget-conscious consumers, many of whom rely on such vehicles as their primary means of transportation.
Government’s Justification
The federal government has cited revenue generation and tax harmonization as key motivations behind the policy shift. Officials argue that the preferential GST rate granted to small cars created distortions in the tax system and limited potential tax income at a time when fiscal pressures remain high.
“Eliminating tax privileges is a necessary step toward a more balanced and sustainable revenue framework,” a senior FBR official reportedly stated.
Potential Market Impact
Auto industry analysts warn that the increase in vehicle costs could dampen demand for locally assembled cars, especially among first-time buyers. As a result, the market may see a surge in demand for used, imported vehicles, which could offer more competitive pricing.
To mitigate this potential shift and ensure supply meets demand, government officials are said to be considering easing import restrictions on used cars, a policy reversal that could significantly alter the competitive landscape for local automakers.
Industry Reaction
While no official statements have been released by Pak Suzuki or other automakers, industry insiders express concern that the proposed GST hike could further slow down car sales, which have already been under pressure due to inflation, high interest rates, and reduced consumer purchasing power.
Disclaimer
This article is based on proposals outlined in the federal budget for 2025–26 and may be subject to change pending parliamentary approval. Price impacts are estimates and may vary depending on final tax implementation and dealer pricing. Always consult official sources or authorized dealerships for the most accurate and up-to-date information.
Afsheen Gohar is a seasoned writer with a wealth of experience in crafting authentic and well-researched articles. Her dedication to delivering high-quality content is evident in her work, where she combines a passion for storytelling with a commitment to accuracy and depth. Afsheen’s writing reflects her ability to engage readers with compelling narratives while providing valuable insights on a diverse range of topics.
