Prime Minister Shehbaz Sharif has approved a five-year automotive policy that rejects the proposal of International Monetary Fund (IMF) to raise the sales tax on electric vehicles (EVs) to 18 percent. The policy sets a target of raising vehicle exports to $6 billion.
According to the policy document, a 10 percent federal excise duty will apply to electric vehicles valued above $75,000. Import duties on vehicles will be reduced in phases, with the tariff brought down to 15 percent by 2030-31 to improve competitiveness in the sector.
Sales tax on electric vehicles will be reduced gradually until 2031.
Battery electric vehicles will attract a 1 percent sales tax from 2026 to 2031, while range-extended electric vehicles will be taxed at 6 percent and plug-in hybrids at 9 percent. Lower tariffs will apply to small electric vehicles valued below $15,000, and import duties on electric vehicles will be cut.
The financing limit for electric vehicles will rise from Rs3 million to Rs10 million, and the repayment period from three years to five. The policy also stresses making small cars accessible to low-income consumers.
An automotive development levy will be imposed on vehicles above 1,000cc, and it is estimated to generate more than Rs232 billion over five years. The proceeds will fund export incentives, industrial development programs and technology upgrades for auto parts manufacturers. The government will enact the law on the levy by December 2026.
Under the export framework, vehicle manufacturers will have mandatory export targets. Companies will receive compensation equal to 5 percent of their export value, along with a further 10 percent incentive on exports above the previous year’s level.
Companies that miss targets will face penalties, and a manufacturing certificate will be cancelled if targets are missed for two consecutive years. Auto parts exports are to reach $1.2 billion by 2030-31. The policy also sets new local production targets for auto parts. Companies that fail to meet them will lose their incentives.
A Pakistan Automotive Testing Institute will be established, with funding for research, certification and third-party audits. International safety standards will apply to both locally assembled and imported vehicles, and company contracts will include buyer protection clauses.
For transparency, the sector will be audited twice a year, and payments of local production and export incentives will be subject to third-party audit. The policy also proposes new targets for training skilled workers in the sector.