EV Adoption May Cost Pakistan $5.68 Billion in Fuel Tax Revenue

A new study from the Asian Development Bank (ADB) titled “Road Maintenance Financing and Cost Recovery Options” predicts that Pakistan’s road infrastructure will take a major hit as the nation shifts to EVs.

According to the report, gasoline taxes bring in almost $5.68 billion a year for Pakistan, which is more than 80% of the country’s road user earnings. This source of income might dry up entirely if electric vehicles become widely used, leaving just 35% to pay for road repairs.

Pakistan’s EV Transition: Challenges and Revenue Risks

Additional difficulties will arise as a result of the shift to electric vehicles, even though financial incentives are anticipated to hasten adoption through domestic manufacture and EV imports. Still, significant obstacles include a lack of a reliable charging infrastructure and restrictions in the power grid.

The goal of Pakistan’s National Electric Vehicle Policy (2021) is to have half of the country’s two three-wheelers powered by electricity by the year 2030, down from 30% of cars. Despite the policy’s focus on local EV production, experts argue that stronger purchase incentives are necessary to boost adoption and create a strong EV ecosystem.

Another important source of income, customs fees on automobiles, could take a hit if EV duty rates are cut, which could result in an annual loss of $394 million. Although there are currently only about 25,000 registered electric vehicles in Pakistan, most of which are two- or three-wheelers, predictions indicate that by 2030, there could be as many as 8.2 million EVs on the roads, cutting fossil fuel consumption by as much as 18 million tonnes of oil equivalent (TOE).

Pakistan’s Road Funding Faces Challenges Amid EV Shift

Pakistan has an extensive road network covering 500,750 km, with 40% of that distance being paved, according to the research. The road maintenance budget of $1.53 billion only covers 44% of the nation’s $3.47 billion road upkeep requirements, even though road user revenues generate $6.89 billion yearly.

Since petrol taxes make a significant impact on the federal budgets, the research also cautions about the potential economic fallout of the change. The government has committed to raising petroleum levy collection to Rs 920 billion for FY24. The transportation sector accounts for 90% of petroleum fuel consumption. Reduced grid revenue, rising tariffs, and additional shifts away from traditional energy sources might be the result of a “death spiral” set in motion by the expected drop in fuel usage.

Pakistan is facing revenue losses, thus the Asian Development Bank (ADB) has asked the country to reevaluate its road maintenance finance plans and implement fair regulations to meet infrastructure demands while also embracing greener transportation options.