ISLAMABAD: Prime Minister Shehbaz Sharif has approved a five-year auto policy aimed at increasing local production, boosting exports and improving competition in Pakistan’s automotive sector, ARY News reported.
According to the policy document, the government has set a target of increasing vehicle exports to $6 billion. The policy also includes measures to increase the production of locally manufactured auto parts, improve technology and gradually reduce import duties on vehicles.
The government has rejected the International Monetary Fund’s (IMF) proposal to increase sales tax on electric vehicles (EVs) to 18 per cent.
However, the policy proposes a 10 per cent federal excise duty on electric vehicles valued at more than $75,000.
Electric vehicle taxes and financing
Under the new policy, sales tax on battery electric vehicles will remain at one per cent from 2026 to 2031. Range-extended electric vehicles will face a six per cent sales tax, while plug-in hybrid vehicles will be subject to a nine per cent rate.
The policy also proposes reducing import duties on electric vehicles in phases. Lower tariffs have been proposed for small electric vehicles valued below $15,000.
The financing limit for electric vehicles is set to increase from Rs3 million to Rs10 million, while the maximum financing period will be extended from three to five years.
The policy aims to make smaller vehicles more accessible to low-income consumers. Sales tax on electric vehicles will be reduced gradually until 2031, according to the policy document.
Export targets and incentives for manufacturers
The government has set a target of increasing auto parts exports to $1.2 billion by fiscal year 2030-31.
Under the proposed framework, vehicle manufacturers will have mandatory export targets. Companies meeting the requirements will be eligible for compensation equal to five per cent of their export value. An additional 10 per cent incentive has been proposed for exports above the previous year’s level.
Companies that fail to meet their export targets will face penalties. Manufacturers that miss their targets for two consecutive years could have their manufacturing certificates cancelled.
The policy also sets new targets to increase the use and production of locally manufactured auto parts. Companies that fail to meet local production targets could lose their incentives.
To improve competition, tariffs in the automotive sector are to be reduced to 15 per cent by 2030-31.
Automotive Development Levy and industrial growth
The policy proposes an Automotive Development Levy on vehicles with engine capacities above 1,000cc.
The government estimates that the levy could generate more than Rs232 billion over five years. The funds are proposed to support export incentives, industrial development programmes and technology upgrades for auto parts manufacturers.
The policy also proposes allocating funds for the technological development of local auto parts manufacturers.
Legislation related to the Automotive Development Levy is targeted for completion by December 2026.
Safety standards and consumer protection
The new policy proposes establishing the Pakistan Automotive Testing Institute to support research, certification and independent audits in the automotive sector.
Global safety standards are proposed for both locally manufactured and imported vehicles. Vehicle manufacturers will also be required to include consumer protection provisions in their agreements with buyers.
The policy proposes two audits each year to improve transparency in the sector. Payments for local production and export incentives will be subject to third-party audits.
It also sets new targets for training skilled workers to meet the automotive industry’s requirements.
The policy is intended to increase domestic production, expand exports and improve the competitiveness of Pakistan’s automotive industry over the next five years.