The federal government has proposed higher taxation on luxury vehicles while retaining incentives for electric transport under the Budget 2026-27 presented in the National Assembly.
Presenting the budget, Finance Minister Muhammad Aurangzeb announced the imposition of federal excise duty (FED) on imported cars and sport utility vehicles (SUVs) with engine capacities ranging from 2,000cc to 3,000cc.
The minister said the duty on vehicles with engine capacities exceeding 3,000cc has also been increased as part of the government's efforts to tax luxury consumption.
Under the budget proposals, the federal excise duty will also apply to luxury electric vehicles valued at more than Rs20 million. The government said the move is intended to ensure that high-end electric vehicles do not disproportionately benefit from incentives designed to promote cleaner transportation.
Aurangzeb further announced the imposition of a federal excise duty of Rs80 per litre on spirit, naphtha and turpentine oil.
Despite the new taxes on luxury vehicles, the government has decided to continue existing incentives for electric mobility. The finance minister said the current concessionary regime for electric motorcycles, rickshaws, cars and buses will remain in place during the next fiscal year.
To further encourage the adoption of environmentally friendly transport, the government has proposed a one percent sales tax facility on imported electric trucks.
Highlighting the importance of the automobile industry, Aurangzeb described the auto sector as one of the key contributors to the national economy. He said successive governments had introduced development-oriented policies over the past decade to support the industry's growth.
The finance minister informed the House that a new auto sector policy is currently being finalized by a committee constituted by Prime Minister Shehbaz Sharif. He said details of the policy would be presented before Parliament after receiving approval from the prime minister and the federal cabinet.
In another measure, the government proposed abolishing the federal excise duty currently charged on international business-class air travel.
Aurangzeb said the budget seeks to maintain support for productive sectors while ensuring that affluent consumers and luxury spending contribute a greater share to government revenues.
The finance minister also announced the elimination of customs duty on raw materials used in the manufacture of cancer medicines, saying the move would help reduce costs associated with the production of life-saving treatments.
The budget proposals will now be debated in Parliament before being incorporated into the Finance Bill for final approval.