The federal government has announced new and higher taxes on luxury and imported vehicles in the federal budget for fiscal year 2026-27, aiming to boost revenues, discourage non-essential imports and reduce pressure on the country’s foreign exchange reserves.

Presenting the budget in the National Assembly on Friday, Finance Minister Muhammad Aurangzeb unveiled a series of tax measures targeting high-end vehicles and certain petroleum-related products.

Under the proposals, a Federal Excise Duty (FED) will be imposed on all petrol and diesel vehicles, particularly sports utility vehicles (SUVs), with engine capacities ranging from 2,000cc to 3,000cc.

The minister also announced an increase in the existing excise duty on vehicles with engine capacities exceeding 3,000cc.

Aurangzeb said the measures were intended to create a more balanced taxation framework for the automobile sector and help curb luxury vehicle imports that place additional strain on Pakistan’s foreign exchange reserves.

The budget also proposes bringing electric vehicles valued above Rs20 million into the Federal Excise Duty regime, making the import of high-end EVs subject to additional taxation.

However, the finance minister clarified that incentives for environmentally friendly transport would continue. Existing concessions for electric motorcycles, rickshaws and buses will remain in place.

He told lawmakers that a committee formed by Prime Minister Shehbaz Sharif is reviewing a new auto policy, under which further reforms in the automobile sector are expected.

Separately, the government has proposed imposing a Federal Excise Duty of Rs80 per litre on white spirit and mineral turpentine oil.

Aurangzeb said the two products are often used in the illegal adulteration of petrol and other petroleum products, causing damage to vehicles, industrial machinery and equipment.

The minister said the new duty is aimed at discouraging fuel adulteration and improving fuel quality for consumers across the country.

The measures form part of the government’s broader fiscal strategy to increase revenue collection, regulate imports and improve market compliance while protecting foreign exchange reserves.