NEVs at 1% Sales Tax — But What Is the Cost of the Tax Concession?

Pakistan’s tax policy currently provides exceptionally favourable treatment to New Energy Vehicles (NEVs), including a reported flat 1% sales tax regime. According to the industry estimates referred to in the report, annual NEV sales could reach around 50,000 vehicles, while the average reduction in duties and taxes is estimated at approximately Rs 3 million per vehicle.

On that basis, the implied revenue concession has been estimated at around Rs 150 billion annually. The original discussion does not question the need to promote electric mobility itself; rather, it raises the issue of whether such substantial tax concessions should predominantly benefit purchasers of relatively expensive private vehicles when similar fiscal support could potentially be directed towards electric buses, motorcycles, rickshaws, charging infrastructure or local battery and component manufacturing.

The broader tax-policy question is therefore about the economic return generated from tax incentives. A reduced sales tax rate or customs concession effectively represents revenue that the Government chooses not to collect. Accordingly, such incentives should ideally be evaluated not only on the basis of promoting a particular technology, but also in terms of how widely their economic, environmental and social benefits are distributed.