FY27 Budget Finalised: Mixed Customs Duties for Imported Vehicles, Special Excise Duty Removed

The National Assembly has given its final approval to the Finance Bill 2026-27, formalising the federal budget for the upcoming fiscal year. Among the various amendments, significant changes have been made to automobile taxation, particularly customs duties on imported vehicles and the application of Special Excise Duty.

What the FY27 budget changed for automobile taxation

The approved budget introduces a new tariff regime for imported vehicles, effective from July 1. Customs duties have been adjusted across different engine capacities. For larger vehicles, duties have increased: imported vehicles with engine capacities between 2,000cc and 3,000cc will now face an 86 percent duty, while those above 3,000cc will attract a 92 percent duty. This makes larger imported cars more expensive.

Conversely, duties on several smaller imported vehicles have been reduced. The effective duty on 1,800cc vehicles has been lowered from 156 percent to 74 percent. Vehicles above 1,500cc (likely referring to the 1500-1800cc range) will now face a 57 percent duty, down from 91 percent. For vehicles between 1,000cc and 1,500cc, the duty has been cut from 76 percent to 52 percent, and for vehicles up to 850cc, it has been reduced from 66 percent to 42 percent. This makes smaller imported cars more affordable.

Perhaps most notably for local assemblers, the Special Excise Duty (SED) will no longer apply to vehicles with engine capacities of up to 1,800cc. Additionally, new customs duties have been set for imported electric vehicles (EVs): 30 percent for EVs valued up to $75,000 and 40 percent for those above $110,000.

Here is a summary of the key customs duty changes for imported vehicles:

Why it matters for automobile assembler stocks

The changes in customs duties and the removal of Special Excise Duty create a complex picture for Pakistan's automobile assemblers. The reduction in duties on smaller imported vehicles could intensify competition for locally assembled cars in those segments, as imported options become more price-competitive. Conversely, the increase in duties on larger imported vehicles might reduce competition for local assemblers who offer models in those higher-end segments.

The removal of Special Excise Duty for vehicles up to 1,800cc is a direct positive for local assemblers. This reduces the overall tax burden on their smaller and mid-range models, potentially making them more affordable for consumers and supporting sales volumes. However, the overall impact on demand will depend on how consumers react to the new pricing structures for both imported and locally assembled vehicles, as well as broader economic factors like auto financing availability and purchasing power.

Which stocks, and why

For Pak Suzuki Motor, which primarily operates in the sub-1500cc segment, the lower duties on imported vehicles up to 1,500cc (including 850cc and 1,000-1,500cc categories) could lead to increased competition from imported cars. This is a potential negative. However, the removal of Special Excise Duty for vehicles up to 1,800cc is a positive development, as it reduces the tax component on its locally assembled models, potentially improving affordability.

Similarly, Honda Atlas Cars, with its offerings in the 1200cc to 1800cc segments, may face heightened competition from imported vehicles in the 1500-1800cc range due to reduced duties. The removal of Special Excise Duty up to 1,800cc is a positive for Honda Atlas, as it lowers the tax burden on its locally assembled cars.

Indus Motor Company has a more diversified product portfolio. The lower duties on imported 1500-1800cc vehicles could increase competition for its Yaris and Corolla models. However, the higher duties on imported vehicles in the 2,000-3,000cc and above 3,000cc categories are a positive, as they make imported competitors for its larger vehicles like Fortuner and Hilux more expensive. The removal of Special Excise Duty up to 1,800cc is also beneficial for its Yaris and Corolla models. The overall impact for Indus Motor Company is therefore quite mixed, with both positive and negative channels.

What to watch

Investors should monitor monthly auto sales data to gauge how these duty changes affect demand for locally assembled vehicles versus imported ones. Any shifts in consumer preference towards specific engine categories, or changes in the availability and cost of auto financing, will be key indicators. The government's stance on future import policies and the overall economic environment will also continue to influence the auto sector's performance.