ISLAMABAD – The federal government is in discussions with the International Monetary Fund (IMF) over a proposal to reduce sales tax on locally assembled vehicles up to 800cc as part of the upcoming automobile policy, according to reports.

The government has proposed decreasing the sales tax rate on these vehicles from 18 percent to 12.5 percent.

The IMF had initially raised objections to the proposed reduction, but consultations between both sides are continuing before the finalisation of the policy.

Prime Minister Shehbaz Sharif has directed relevant authorities to prepare an investor-friendly auto policy aimed at encouraging new investment and creating employment opportunities in the automobile sector.

The upcoming policy is also expected to focus on improving the competitiveness of Pakistan’s auto industry by introducing globally recognised vehicle safety standards. The government plans to align locally produced and imported vehicles with 62 international safety regulations in line with United Nations guidelines.

Reports said the policy will include measures to promote electric vehicles, hybrid vehicles, and plug-in hybrid electric vehicles. It may also introduce a carbon tax on engines used in locally manufactured petrol and hybrid vehicles.

The new auto policy is expected to be announced in August after completion of consultations with stakeholders, including the IMF.