Government Rejects Proposal to Increase Sales Tax on Small Cars, Providing Relief to Public and Auto Industry

The government has **rejected** the proposal to raise the **sales tax** rate on small cars in the **2024-25 budget**, providing significant relief to the public and the local **automobile industry**.

The **Ministry of Industries and Production** had suggested imposing an **18% General Sales Tax (GST)** on all locally manufactured vehicles, with an exception for vehicles with engines under **1400cc**. However, the **Federal Board of Revenue (FBR)** rejected this proposal, as it could reduce the tax rate on vehicles already paying **25% GST**, potentially leading to a decline in tax revenue.

According to media reports, FBR emphasized the necessity of broadening the **tax base** under the **IMF standby agreement**. The board expressed concerns that the proposal could reduce tax revenue, which could undermine fiscal stability.

In **March 2023**, the government had raised the **sales tax** on **luxury vehicles** from **17%** to **25%** in a bid to tackle **fiscal deficits** and **current account issues**. This tax hike applied to vehicles with **1400cc engines or larger** and **SUVs**.

The **Pakistan Automotive Manufacturers Association (PAMA)** welcomed the decision, as the automotive industry is already struggling with **inflation** and **weak demand**. PAMA noted that any increase in sales tax could have further raised the prices of locally produced cars, leading to a drop in sales and a reduction in tax revenues for the government.

This decision has brought relief to buyers of small cars, providing stability to the auto industry. However, the government has maintained the **25% sales tax** on **luxury vehicles**, aiming to balance the market and boost tax revenues.

This step is seen as a significant measure for the **public interest** and the **economic well-being**, offering relief to citizens under inflationary pressures while supporting the **local industry**.