Budget 2025-26: Small car prices expected to rise as govt plans higher sales tax

As the budget 2025-26 approaches, Pakistan's automobile sector is closely watching what the final tax proposals will look like.

According to Business Recorder, the prices of small cars in Pakistan are likely to increase from July 1, 2025, as the government plans to raise the sales tax on vehicles with an engine capacity of up to 850cc.

The decision is likely to be included in the federal budget for 2025-26, which is set to be announced in June.

Currently, small locally manufactured or assembled vehicles with an engine capacity of up to 850cc are taxed at a sales tax rate of 12.5%. The government, however, is seeking to raise taxes to 15% - 18%, according to ProPakistani.

The raise is a revenue generation exercise and is part of the new Finance Bill 2025-26. The FBR is expected to withdraw entry number 72 from the Eighth Schedule of the Sales Tax Act 1990. This means that small car purchasers would lose the relief that small car purchasers have received for the last several years.

Once implemented, popular budget vehicles like Suzuki Alto and United Bravo—widely purchased by middle-income families—will see a noticeable price hike. This could affect affordability for many people looking to buy a new car.