Islamabad: The Finance Bill 2025's proposed budgetary measures are poised to pose significant challenges for the auto sector, with potential impacts on local auto assemblers and the broader market. The government plans to gradually reduce Additional Custom Duty (ACD) and Regulatory Duty (RD) on imported cars over the next four to five years. This reduction could make imported cars more affordable, intensifying competition for domestic manufacturers.

In a bid to encourage electric vehicle adoption, a levy on internal combustion engine (ICE) vehicles is also proposed. This levy, to be paid by manufacturers or importers, aims to fund initiatives that support the transition to electric vehicles.

The budget further proposes an increase in the sales tax on vehicles up to 850cc from 12.5% to 18%. This tax hike is expected to impact the small car segment, which accounts for 38% of the market and includes popular models such as the Suzuki Alto.

The combined effect of these measures may lead to higher car prices and increased competition from imports. This development comes as the local auto industry has shown a robust recovery of 40% in the first eleven months of FY25, following significant declines of 55% and 18% in FY23 and FY24, respectively.

Industry stakeholders are now closely monitoring how these proposed changes will unfold and impact the sector's future dynamics.