The federal government has approved a long-awaited revision of vehicle token tax rates in Islamabad, marking a significant policy move to enhance revenue collection and modernize the taxation framework.
The decision, taken during the most recent cabinet meeting, applies to private cars, public service vehicles, and commercial fleets operating within the federal capital.
Amendments to an Outdated Law
As per the official sources, the Cabinet endorsed a summary presented by the Ministry of Interior and Narcotics Control. The proposal recommended changes to the West Pakistan Motor Vehicles Taxation Act, 1958, a decades-old law under which token taxes are still levied.
This framework had become highly outdated, especially since the tax rates had remained unchanged since 2019, leaving Islamabad’s Excise and Taxation Department with very few revenue-generating capacity.
Revenue Collection and Targets
Despite outdated rates, the Excise and Taxation Department, ICT, managed to gather Rs. 4.29 billion in fiscal year 2024–25 via vehicle registration transfers and token tax collection.
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For the upcoming year, a target of Rs. 4.5 billion has been set under the 2025 Finance Bill. Officials informed the Cabinet that without revising the token tax, achieving this higher target would be difficult.
The stagnant rates not only restricted Islamabad’s revenue potential but also created a mismatch contrasted to provincial tax structures, where revisions have been more frequent.
Ensuring Parity and Efficiency
To address these concerns, the Cabinet ratified the West Pakistan Motor Vehicles Taxation (Amendment) Act, 2025, drafted by the ICT Administration (ICTA). The bill proposes revised token tax rates across all categories of vehicles.
Importantly, it also empowers ICTA to retain any revenue collected above the Rs. 4.5 billion target, permitting the administration to reinvest the surplus directly into local development projects and civic improvements.
Impact on Citizens and Governance
While the tax hike may increase prices for vehicle owners, the government keep on insisting that the measure is highly important to ensure fiscal sustainability and fair alignment with provincial counterparts.
By updating decades-old laws and revising stagnant rates, policymakers keep on believing that Islamabad’s taxation system will become more efficient, transparent and capable of funding development initiatives that ultimately benefit residents.