ISLAMABAD: The federal government has proposed a new levy on vehicles based on engine power in the Budget 2025-26, along with applying a uniform 18% sales tax on all vehicles — including those previously taxed at lower rates. This move is likely to increase car prices.
During his budget speech in the National Assembly, Finance Minister Muhammad Aurangzeb announced that the government aims to promote electric two- and three-wheelers under a new energy vehicle policy.
The policy focuses on replacing petrol and diesel vehicles with electric ones to reduce environmental pollution and lessen dependence on imported fuel.
The proposed levy will apply to the manufacturing and import of fuel-powered vehicles, with tax rates varying according to engine capacity. Minister Aurangzeb said the measure would not only help protect the environment but also reduce the country’s oil import bill.
He added that in order to remove discrepancies in the tax system, all cars — including those previously taxed below 18% — will now face a flat 18% sales tax. For example, small cars previously taxed at 12.5% will now be taxed at 18%, raising the price of a car worth Rs2.5 million by around Rs137,500.
Big Tax Relief for Salaried Class;
In a major relief for the salaried class, Finance Minister Aurangzeb announced significant cuts in income tax rates.
He said the government has reduced tax rates in all income slabs to ease the financial burden on salary earners. For those earning between Rs600,000 and Rs1.2 million annually, the tax rate has been lowered to just 1%.
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Similarly, the annual tax on Rs1.2 million income has been cut from Rs30,000 to Rs6,000. For those earning up to Rs2.2 million per year, the tax rate has been reduced from 15% to 11%.
Meanwhile, people earning between Rs2.2 million and Rs3.2 million annually will now pay 23% tax instead of the previous 25%.
Tough Measures Proposed Against Tax Fraud in Budget 2025-26;
In other news, the government has proposed strict punishments for those involved in tax fraud. As part of the Rs17.573 trillion federal budget, anyone found guilty of tax fraud may face up to 10 years in jail and a fine of Rs10 million.
The Finance Bill proposes that both penalties can be applied together. It also suggests a 100% fine on the amount of tax evaded.
Those who assist in tax fraud will also face the same punishment — up to 10 years in jail and Rs10 million in fines. Both penalties can be enforced together for such individuals as well.
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Additionally, there is a proposal to impose a fine of Rs50,000 for not issuing electronic invoices. If someone tampers with e-bills, the evaded amount will be recovered.
The bill further suggests giving FBR officers powers equal to civil court judges, including the authority to arrest anyone involved in tax fraud during investigations.
FBR inquiry officers may also arrest individuals without needing prior approval from a commissioner. The bill includes proposals to allow the arrest of company owners and directors involved in tax evasion.
