“Vehicle taxes generated nearly 18% of 2025 government revenue”

Vehicle imports have made a significant contribution to government revenue, given the exceptionally high tax incidence on motor vehicles, says JB Securities Managing Director Murtaza Jafferjee.

Vehicles have consequently become one of the government's most attractive revenue sources.

"They are relatively easy to tax because nearly all vehicles enter through ports, making enforcement straightforward, while consumer demand has historically remained resilient despite exceptionally high tax rates."

Of the approximately Rs. 5,049 billion collected in tax revenue during 2025, around Rs. 905 billion—almost 18% of total government tax revenue—was derived from the vehicle sector.

Since passenger vehicle import restrictions were lifted on 1 February 2025, 125,067 vehicles have been registered. Of these, 63% are internal combustion engine (ICE) vehicles, 27% are hybrids and only 10% are electric vehicles (EVs).

In terms of excise taxes collected (approximately Rs. 457.86 billion), 60% came from ICE vehicles, 35% from hybrids and 5% from EVs.

Today, passenger vehicles are subject to two broad categories of taxation. The first is a specific excise duty, where the tax base is either engine cylinder displacement (cc) for internal combustion engine (ICE) and hybrid vehicles, or motor power (kW) for battery electric vehicles (EVs).

The second comprises ad valorem taxes based on the vehicle's CIF value, including Customs Duty (and any applicable surcharges), Luxury Tax where applicable, Value Added Tax (VAT) and the Social Security Contribution Levy (SSCL).

Importantly, VAT and SSCL are imposed not only on the import value of the vehicle but also on the excise duty, Customs Duty and Luxury Tax, creating a cascading effect. The cumulative tax burden on passenger vehicles typically ranges from around 120% to more than 300% of the vehicle's import value.

"A simpler, value-based tax system would not only be easier to administer but would also produce more rational market outcomes while preserving government revenue." (SS)