Business Desk 
May 29, 2025
As Pakistan gets ready to announce the federal budget 2025-26, the government is looking to collect more money through the automobile sector. A key proposal from the Federal Board of Revenue (FBR) suggests raising withholding tax rates on cars with engine sizes above 1300cc.
At present, the tax on cars is decided based on their engine capacity and price. Bigger and more expensive vehicles are taxed at higher rates. This system helps the government collect revenue while also encouraging buyers to consider more affordable and fuel-efficient options.
Currently, the withholding tax on cars is charged based on engine size and as a percentage of the vehicle’s value.
Here's how the tax structure looks right now:
- 2% for 1300cc–1600cc
- 3% for 1600cc–1800cc
- 5% for 1800cc–2000cc
- 7% for 2000cc–2500cc
- 9% for 2500cc–3000cc
- 12% for over 3000cc
According to media reports, the FBR will increase the percentage above for each engine size; however, what the new percentage will be has yet to be finalised.
The general concept of the new percent is intended to take more from the big and expensive cars, and the costs should be shifted to consumers' larger engines.
This proposal is a subsequent step to the major change that took place in last year's budget, moving from a fixed tax to a value-based tax, wherein the price of the vehicle is now significantly considered in the amount subject to tax.
