Prices of locally manufactured or assembled motorcars with engine capacities up to 850cc are set to climb from July 1, 2025, as the government moves to increase the sales tax rate in the upcoming budget.

Currently, these small cars benefit from a concessionary sales tax rate of 12.5 percent. However, officials have agreed in principle to raise this rate to between 15 and 18 percent in the Finance Bill 2025-26, ending the tax break that has kept prices relatively low for entry-level vehicles.

The Federal Board of Revenue (FBR) is expected to propose the deletion of entry number 72 from the Eighth Schedule of the Sales Tax Act 1990, effectively scrapping the reduced sales tax regime for these vehicles.

If approved, the new tax rates will take effect from July 1, 2025, likely making small cars less affordable for many buyers. The move comes as part of broader fiscal measures being considered in the government’s upcoming budget.