The federal cabinet has greenlit a significant increase in vehicle token tax rates for Islamabad, aiming to boost revenue for private, public service, and commercial vehicles. This decision, finalized in the cabinet’s latest meeting, updates a decades-old tax framework to align with modern financial needs.
Cabinet Updates Tax Structure
The cabinet, in its recent session, endorsed a proposal from the Ministry of Interior and Narcotics Control to amend the West Pakistan Motor Vehicles Taxation Act of 1958. This law governs token taxes collected by the Excise and Taxation Department in Islamabad Capital Territory (ICT), which handles vehicle registration, transfers, and tax collection for the federal government.
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Token tax rates have not changed since 2019, capping the department’s ability to generate funds. In the 2024-25 fiscal year, the department collected Rs. 4.29 billion but aims to reach Rs. 4.5 billion as set in the 2025 Finance Bill. The cabinet was informed that outdated rates have hindered revenue growth and created disparities with provincial tax systems.
Why the Tax Hike Matters
The increase aims to modernize the tax system, ensuring it aligns with provincial standards and boosts efficiency. The ICT Administration (ICTA) has proposed the “West Pakistan Motor Vehicles Taxation (Amendment) Act, 2025,” which outlines revised rates for all vehicle types. The bill also allows ICTA to keep any revenue exceeding the Rs. 4.5 billion target for local development projects.
This move reflects the government’s push to strengthen financial resources in the capital, where vehicle usage has grown significantly. The updated rates are expected to support infrastructure improvements and streamline tax administration.
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Key Points of the Tax Hike:
- Amends the 1958 Motor Vehicles Taxation Act.
- Targets Rs. 4.5 billion in revenue for 2025.
- Allows ICTA to retain excess funds for development.
- Aligns Islamabad’s tax rates with provincial systems.
Broader Implications
The tax hike could increase costs for vehicle owners in Islamabad, potentially affecting private car users, public transport operators, and commercial fleets. However, the additional revenue is expected to fund local projects, improving roads, public services, and infrastructure in the capital. The move also brings Islamabad’s tax system closer to those in Punjab and other provinces, creating a more unified framework.
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What’s Next?
The ICTA’s draft bill awaits final approval to implement the new rates. Once passed, the Excise and Taxation Department will roll out the revised token taxes, with excess funds earmarked for development initiatives. Vehicle owners are advised to stay updated through official channels for details on the new rates and their implementation.
