Tax Reductions on Small Cars in Budget 2021-22

Government in the newly announced Financial Budget for FY2021-22 has reduced taxes on small cars which will likely bring them more within the reach of common buyers.

Finance Minister Shaukat Tareen who presented the budget in National Assembly revealed that 2.5% Federal Excise Duty (FED) on cars with up to 850cc engine capacity has been removed. Furthermore, sales tax on these cars has also been brought down from 17% to 12%. The new reduction in taxes will likely see prices of small cars decreased by up to PKR 1.25 lac and will be applicable to locally assembled vehicles including United Bravo, Prince Pearl as well as the Suzuki Alto.

In addition a massive reduction of taxes on electric vehicles (EVs) was also announced. The government has abolished tax on import of CKD units for local manufacturing (assembling) of EVs. Sales tax on locally assembled electric vehicles will be reduced to from 17% to just 1%, whereas Value Added Tax (VAT) on import of EVs and CKDs will now be 0%.

It was being anticipated that the prices of cars will go down after the budget due to reduction in taxes, however the relief has been given on cars below 850cc and EVs only. Furthermore the new auto policy 2021-26 is also expected to be announced soon which, according to Special Assistant to PM, Dr. Shahbaz Gill, will be focused on making cars affordable for middle-class buyers, increase local production and enhancing exports.

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