Federal Finance Minister Aurangzeb has announced an increase in withholding tax charged on the purchase of new cars, according to the official budget 2024-25 announcement.
Not only is the withholding tax increasing across the board, but cars with engine capacity of under 850 cc up to 2000 cc will be charged withholding tax based on a percentage of their price.
Here are the current tax rates and the new tax rates proposed by the government:
| Engine Capacity | Current Tax Rate | Proposed Tax Rate | Average Vehicle Price | Approx. Tax per Vehicle |
|---|---|---|---|---|
| Up to 850cc | Rs. 10,000 | 0.50% | Rs. 2,500,000 | Rs. 25,000 |
| 851cc to 1000cc | Rs. 20,000 | 1% | Rs. 4,000,000 | Rs. 40,000 |
| 1001cc to 1300cc | Rs. 25,000 | 1.50% | Rs. 4,500,000 | Rs. 67,500 |
| 1301cc to 1600cc | Rs. 50,000 | 2% | Rs. 6,000,000 | Rs. 120,000 |
| 1601cc to 1800cc | Rs. 150,000 | 3% | Rs. 7,500,000 | Rs. 225,000 |
| 1801cc to 2000cc | Rs. 200,000 | 5% | Rs. 9,000,000 | Rs. 450,000 |
| 2001cc to 2500cc | 6% | 7% | Rs. 12,500,000 | Rs. 875,000 |
| 2501cc to 3000cc | 8% | 9% | Rs. 15,000,000 | Rs. 1,350,000 |
| Above 3000cc | 10% | 12% | Rs. 50,000,000 | Rs. 6,000,000 |
For example, if you bought a car for Rs. 2.5 million, you will pay Rs. 10,000 as withholding tax currently. However, under the new tax rate, you will pay Rs. 25,000 instead. This will increase car prices across the board, with even the least expensive cars affected.
The auto industry is already struggling with low sales due to inflation affecting the purchasing power of the masses. They’ve introduced numerous offers and deals to entice buyers. But, with the government increasing taxes further, this completely destroy the automotive industry that was once thriving in Pakistan
Electric cars haven’t been spared either as the government has proposed withdrawing their tax exemptions. This will affect EVs priced above $50,000, which includes the likes of Audi e-Tron and e-Tron GT.
Read more: Govt Ends Tax Exemption for Luxury Electric Cars.
