Karachi, May 19, 2025 – The Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended the government take urgent steps to rationalize the Federal Excise Duty (FED) and sales tax imposed on locally manufactured vehicles in the upcoming 2025-26 federal budget.
In its official tax proposals submitted to the Ministry of Finance, the OICCI emphasized the pressing need to reduce or abolish FED on locally produced vehicles. It urged that this should be done through amendments to Serial No. 55B and 55D of Table I in the First Schedule of the Federal Excise Act, 2005. The chamber highlighted that the current structure of FED significantly increases the retail price of vehicles assembled in Pakistan, making them unaffordable for a large segment of local consumers when compared to imported used cars.
The OICCI stressed that the continuation of such duties not only hampers the competitiveness of locally manufactured vehicles but also discourages fresh investment in the domestic automotive industry. “The high FED results in lower demand for locally made vehicles, thereby slowing down industrial activity and reducing government revenue,” the chamber noted.
Additionally, the OICCI raised concerns about the elevated sales tax rates being applied to locally manufactured vehicles. At present, these vehicles are subject to an increased sales tax rate of 25%, a significant jump from the standard 18%. The chamber proposed that the government restore the standard sales tax rate of 18% by eliminating the distortionary Table II of SRO 297(I)/2023.
According to the OICCI, the local auto industry is already grappling with reduced production levels, operating at only 40% to 50% of its installed capacity. The imposition of high taxes, especially on locally produced vehicles, has led to a steep drop in demand, pushing many assemblers and manufacturers toward operational shutdowns and financial losses.
Restoring the standard tax regime for vehicles will help stabilize the industry, allowing it to sustain production near the 50% capacity mark. The OICCI believes that such reforms would lead to increased economic activity, enhanced investor confidence, and eventually higher government revenue.
The OICCI reiterated its commitment to working closely with policymakers to ensure that the automotive sector — and the broader economy — benefits from rational and growth-oriented tax policies, particularly concerning the production and sale of locally manufactured vehicles.