Budget 2025-26: FBR eyes end to tax relief on cars up to 850cc 

ISLAMABAD: The government is considering raising the sales tax on small cars to the standard rate of 18 per cent in the upcoming 2025–26 federal budget, as it looks to tighten tax concessions and boost revenue. 

Officials familiar with the matter said the Federal Board of Revenue (FBR) is reviewing a proposal to revise the Eighth Schedule of the Sales Tax Act, 1990, which currently allows a reduced rate of 12.5 per cent on cars with engine capacity up to 850cc. 

If approved, the change would remove the existing tax relief on these smaller vehicles by deleting entry number 72 of the Eighth Schedule, effectively subjecting them to the regular sales tax rate applied across most goods and services. 

The move is part of a broader push by tax authorities to streamline sales tax rates and minimise exemptions in the new fiscal year starting July, in line with commitments to improve domestic revenue collection.  

“All reduced rates are under review to align with the standard rate from 2025–26,” said one official aware of the discussions. 

Meanwhile, farmers in Sindh are pressing the government to ease taxes on agricultural machinery, urging the FBR to slash customs duty on imported tractors from 15 per cent to 5 per cent. 

In a letter to FBR Chairman Rashid Mahmood Langrial, the Sindh Chamber of Agriculture (SCA) also called for a reduction in sales tax on both locally manufactured and imported tractors from 14 per cent to 5 per cent.  

The chamber argued that such a move would not be a fresh exemption, but a downward revision in line with other items already taxed at lower rates under existing provisions of the Sales Tax Act. 

The SCA’s budget recommendations include rationalising the overall tax structure for farm equipment and removing what it calls an undue burden on farmers, as part of efforts to strengthen the country’s struggling agriculture sector. 

The government is expected to finalise tax measures for the 2025–26 budget in the coming weeks, ahead of its presentation later this month. 

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