Pakistan’s proposal to lower taxes on small cars has run into resistance from the International Monetary Fund (IMF), with the lender objecting to a plan to reduce the sales tax on vehicles up to 800cc from 18% to 12.5%, sources told RBN.

The proposed reduction was intended to make entry-level vehicles more affordable, but officials said the IMF did not agree with the measure during the initial stage of discussions.

According to the sources, the government will continue consultations with the IMF before taking a final decision on the proposed tax relief.

The tax proposal forms part of broader discussions on the upcoming Auto Policy, which the government is expected to introduce later this year.

Officials said any changes to vehicle taxation will require IMF concurrence, as the lender remains closely involved in Pakistan’s fiscal reforms under its ongoing financial programme.

The outcome of the talks will determine whether buyers of small-engine vehicles receive any tax relief under the new policy.