ISLAMABAD: Prime Minister Shehbaz Sharif on Tuesday approved the draft Auto Policy 2026-31, which aims to increase auto sector exports to $6 billion and boost local production, competitiveness and electric vehicle (EV) adoption.
Although the Prime Minister’s Office did not issue an official statement, sources in the federal government shared the final draft, which was presented to the premier by Law Minister Azam Nazeer Tarar and Adviser on Industries and Production Haroon Akhtar.
The draft policy will be presented to the federal cabinet for in-principle approval, then it will need parliament’s nod.
The policy aims to bring the auto sector to open competition by significantly reducing tariffs on completely built-up units (CBUs) and completely knocked-down (CKD) kits up to 15pc by 2030-31.
PM ‘okays’ five-year roadmap; policy targets $6bn exports, tariff cuts by 2031; proposes 1pc sales tax on EVs
Under the proposed draft, battery electric vehicles will be subject to a 1pc sales tax during 2026-31. The document proposes a 6pc sales tax on range-extended electric vehicles and a 9pc on plug-in hybrid vehicles.
A 10pc federal excise duty has been proposed on electric vehicles valued more than $75,000. The policy also envisages lower tariffs on smaller electric vehicles priced below $15,000.
To encourage EV adoption, the government has approved proposals to raise the financing limit from Rs3 million to Rs10m and extend the repayment period from three to five years, making smaller vehicles more affordable for low-income consumers.
The government has set the total export target of $6.01bn during the five years of the policy, which includes combined exports of parts and vehicles amounting to $256.6m for 2026-27, $671.8m for 2027-28, $1.11bn for 2028-29, $1.17bn for 2029-30 and $2.19bn for 2030-31 the fifth year of the auto policy.
The policy also proposes mandatory export targets for vehicle manufacturers, with incentives for companies that increase exports.
Under the proposed incentive mechanism, manufacturers would receive compensation equivalent to 5pc of export value for boosting exports, along with an additional 10pc incentive on exports exceeding the previous year’s level.
Companies that fail to meet their export targets would face penalties, and manufacturing certificates could be cancelled if targets remain unmet for two consecutive years.
The policy also sets new targets to increase the use of locally manufactured auto parts. Companies failing to meet local production targets could lose their incentives.
The government expects to collect more than Rs232bn through the Automotive Development Levy over five years.
The proceeds would be used to finance export incentives and industrial development programmes, including funding for technology upgrades by auto parts manufacturers.
The policy proposes levying the Automotive Development Levy on vehicles with engine capacities exceeding 1,000cc.
To strengthen quality assurance and regulatory oversight, the government plans to establish the Pakistan Automotive Testing Institute. The policy also provides funding for research, certification, and third-party audits, as well as the adoption of international safety standards for locally manufactured and imported vehicles.
Meanwhile, Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) Chairman Abdul Rehman Aizaz said the new policy, by lowering the import tariff on parts to 15pc, would phase out local parts manufacturers and benefit assemblers, warning that assemblers could eventually be phased out as imported cars take over.“This policy will make Pakistan an import destination country with no local industrial base in the auto sector,” he remarked.
Published in Dawn, October 21st, 2026