Pakistan's federal government is considering a carbon tax of 10% to 19.5% on vehicles with engines above 2000cc as part of the Budget 2026-27. The levy targets high fuel consumption vehicles to reduce emissions. Officials estimate the tax could generate over Rs. 142 crore in five years. The proposal is being reviewed by a high-level committee chaired by Deputy Prime Minister Ishaq Dar. Alongside the carbon tax, the government plans incentives for locally manufactured electric vehicles. These include cutting customs duty on EV batteries and motors to as low as 1% and a 1% sales tax on EV components. Broader tax exemptions for EVs may cover federal excise duty, capital value tax, and withholding tax. Hybrid vehicles are unlikely to receive similar benefits, signaling a focus on full electrification. The final decision will come in the upcoming federal budget.
