The federal government has introduced a new tax on petrol and diesel vehicles in the Budget for 2025–26, impacting all internal combustion engine (ICE) vehicles, whether locally assembled or imported.
Outlined in the Finance Bill 2025–26, the levy will be calculated based on engine size and applied as a percentage of the vehicle’s total value. It will be collected directly from automakers and importers, although experts believe that the added cost will likely be transferred to end consumers.
The rate structure includes a 1% levy for vehicles below 1300cc, 2% for those between 1300cc and 1800cc, and 3% for engines above 1800cc. On top of this, an extra 1% will be uniformly applied to all categories, intensifying the cost burden for buyers.
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Industry observers say that higher-end and imported cars will be the most affected, with potential price increases making them less affordable. Stakeholders argue that even small percentage hikes can lead to substantial costs, particularly for mid- to high-range vehicles.
Auto experts believe the new measure signals a broader policy shift toward electric and hybrid vehicles. However, concerns remain over the lack of charging infrastructure, limited battery supply, and minimal consumer incentives — all of which may delay the switch to greener alternatives.
