The Federal Board of Revenue (FBR) has reduced sales tax from 25 to 18 percent on locally manufactured hybrid electric vehicles with engine capacity up to 2000cc.

The reduced rate of sales tax will be applicable from September 13, 2026. In this regard, the FBR issued a notification on Monday.

The notification, S.R.O. 1525(I)/2026, was issued under the powers conferred by clause (b) of sub-section (2) of section 3 of the Sales Tax Act, 1990, read with the first proviso to clause (a) of the said sub-section. It amends the FBR’s earlier Notification No. S.R.O. 297(I)/2023, dated March 8, 2023, as previously amended vide Notification No. S.R.O. 370(I)/2024, dated March 8, 2024.

Under the amendment, a new proviso has been added after Table-II of the earlier notification, stating that the provisions of Table-II “shall not apply to locally manufactured hybrid electric vehicles with engine capacity up to 2000 cc.” The notification came into force with immediate effect.

It is to be noted that the higher rate replaced the previous concessional regime under which hybrid vehicles were subject to a reduced sales tax of 8.5 percent. Following the expiry of the exemption, hybrid vehicles were shifted to Schedule II of SRO 297(I)/2023, making them subject to the standard 25 percent sales tax.

The reduction in sales tax on hybrids is expected to lower prices for locally assembled hybrid models and could bring their tax treatment closer in line with the government’s push toward New Energy Vehicles (NEVs), even as officials continue to finalize the auto policy amid ongoing consultations with the International Monetary Fund.

Pakistan’s new five-year Auto Policy (2026-31) draft, recently approved by Prime Minister Shehbaz Sharif, had already directed that hybrid electric vehicles and conventional Internal Combustion Engine (ICE) vehicles be treated equally in terms of duties and taxes, while offering substantially higher tax relief to Battery Electric Vehicles (BEVs) compared with hybrids.