Summary Prime Minister Shehbaz Sharif has approved a five-year auto policy targeting $6 billion in vehicle exports, lower import tariffs, electric vehicle incentives and stronger local manufacturing.
ISLAMABAD (Dunya News) - Prime Minister Shehbaz Sharif has approved Pakistan’s Auto Policy 2026-31, which aims to expand vehicle and auto-parts exports, encourage electric vehicle adoption and strengthen domestic manufacturing through tariff reforms and export-linked incentives.
According to the policy document, Pakistan aims to increase vehicle exports to $6 billion and auto-parts exports to $1.2 billion by 2030-31. The policy also proposes mandatory export targets for automobile manufacturers, with incentives for companies that increase overseas sales and penalties for those that fail to meet their commitments.
Reduced taxes proposed for electric vehicles
The policy proposes differentiated sales tax rates for electric vehicles, rather than adopting an 18% rate reportedly recommended by the International Monetary Fund.
Under the proposed framework for 2026-31, battery electric vehicles would face a 1% sales tax, range-extended electric vehicles 6% and plug-in hybrid vehicles 9%.
A 10% federal excise duty is also proposed for electric vehicles valued at more than $75,000. The policy further envisages lower import tariffs for electric vehicles, including a reduced-tariff category for smaller models priced below $15,000.
The proposed tax structure is intended to support the adoption of cleaner vehicles while encouraging manufacturers to expand local production.
Financing limits to increase
To make electric vehicles more accessible, the policy proposes raising the financing limit from Rs3 million to Rs10 million and extending the maximum loan tenure from three years to five years.
It also emphasises improving access to smaller, more affordable vehicles for lower-income consumers.
The policy document says import duties will be reduced gradually to increase competition in the domestic automobile market. The government aims to bring the tariff rate down to 15% by 2030-31.
Export-linked incentives and penalties
Under the proposed incentive mechanism, companies expanding exports would receive compensation equivalent to 5% of their export value. An additional incentive of 10% is proposed for exports exceeding the previous year's level.
Manufacturers failing to achieve mandatory export targets could face financial penalties. Companies missing their targets for two consecutive years could have their manufacturing certificates cancelled under the proposed framework.
The policy also sets new targets for local production of auto parts. Companies failing to meet localisation requirements could lose government incentives.
These measures are intended to encourage manufacturers to develop domestic supply chains, reduce dependence on imported components and improve the competitiveness of Pakistani-made vehicles and parts in international markets.
New levy to finance industrial development
The policy proposes an Automotive Development Levy on vehicles with engine capacities exceeding 1,000cc. The government estimates that the levy could generate more than Rs232 billion over five years.
The proceeds would be used to support export incentives, industrial development programmes and technological upgrades for auto-parts manufacturers.
The relevant legislation is targeted for completion by December 2026, according to the policy document.
New testing institute and safety standards
The government has also approved a proposal to establish the Pakistan Automotive Testing Institute to improve vehicle quality, research, certification and transparency.
The policy proposes funding for research, certification and independent third-party audits. International safety standards would be applied to both locally manufactured and imported vehicles.
It also calls for consumer-protection provisions in vehicle sales agreements and audits twice a year to improve transparency. Third-party audits would additionally cover local production and export incentive payments.
Training targets for skilled workers in the automotive industry are another component of the policy.
Implementation will be crucial
The policy seeks to transform Pakistan’s automobile industry from a market largely focused on domestic sales into a more competitive manufacturing and export base.
Its success will depend on implementation, the availability of affordable financing, investment in technology, compliance with export targets and the ability of local manufacturers to meet international quality standards.
For consumers, the proposed tax concessions and longer financing periods could improve access to electric vehicles. However, the actual impact on prices and sales will depend on the final rules, their implementation and the availability of suitable vehicles and charging infrastructure.
