ISLAMABAD: The federal government has rejected a proposal to increase the sales tax on locally manufactured or assembled cars up to 850cc in the upcoming Budget for FY 2025–26.

According to sources in the Ministry of Finance, the Federal Board of Revenue (FBR) had proposed raising the sales tax rate from 12.5% to 18% on small vehicles, but the proposal was turned down during the finalization of budgetary measures.

Officials clarified that the Auto Industry Development and Export Policy (AIDEP) 2021–26 mandates a reduced sales tax rate of 12.5% for small cars, and any change in this policy lies within the jurisdiction of the policy-making bodies—not the FBR.

The FBR is not authorized to amend or remove Entry No. 72 of the eighth schedule of the Sales Tax Act, 1990, under which the concession is currently provided.

The decision aims to protect consumers from inflation, support the local auto industry, and ensure that affordable vehicles remain within reach of the public.

The government has confirmed that the existing concessional sales tax regime will continue for small, locally assembled vehicles under the new budget.