The federal government, under the Finance Act 2019, extended the application of Federal Excise Duty (FED) to all imported vehicles, aligning the tax regime with that of locally manufactured automobiles. This policy shift represents a significant move towards harmonizing the taxation framework across the domestic and import markets.
According to a detailed commentary by PwC A.F. Ferguson Chartered Accountants, prior to the Finance Act 2019, FED was applicable only on high-end imported vehicles—specifically, those with engine capacities exceeding 1,799 cc. These vehicles were subject to excise duty rates of 25 percent for engines between 1,800 cc and 3,000 cc, and 30 percent for engines above 3,000 cc.
However, the new provisions introduced in 2019 expanded the scope of FED, bringing imported vehicles of all engine capacities—excluding auto rickshaws—under the excise net. The revised FED structure for imported vehicles is as follows:
• Up to 1,000 cc: 2.5% ad valorem
• 1,001 cc to 1,799 cc: 5% ad valorem
• 1,800 cc to 3,000 cc: 25% ad valorem
• Above 3,001 cc: 30% ad valorem
This broader application of FED ensures that imported vehicles are taxed at rates similar to locally manufactured ones, thereby addressing previous disparities in the tax treatment of the two categories. The move is expected to reduce the preference for imported vehicles by raising their landed cost, potentially providing a competitive edge to the domestic auto industry.
Furthermore, the decision to impose FED on a wider range of imported vehicles is also seen as part of the government’s strategy to control the trade deficit by discouraging the import of luxury goods. By applying uniform excise duty measures, the authorities aim to balance revenue generation and economic sustainability while encouraging the use of locally assembled vehicles over imported alternatives.
In total, FED now impacts imported vehicles across all major segments, marking a clear policy shift toward fiscal uniformity and domestic industrial support.