The federal government has withdrawn its proposal to increase the sales tax on hybrid Cars with engine capacities of up to 1800cc.

Originally, the budget proposal aimed to raise the sales tax on these vehicles from 12.5% to 18%, potentially generating Rs. 7 billion in additional revenue. However, after a review by the National Assembly Standing Committee on Finance, the proposed increase has been scrapped. The current reduced rate of 12.5% will remain in place.

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This marks the second time within a year that a planned sales tax hike on hybrid cars has been reversed before formal budget approval. According to the current auto policy, sales tax on hybrid vehicles cannot be increased until June 2026.

Meanwhile, the government has retained its proposal to raise the sales tax on small cars (up to 850cc) from 12.5% to 18%.