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Prime Minister Shehbaz Sharif has given in-principle approval to the draft Auto Policy 2026-31, which aims to increase vehicle exports, promote electric vehicles (EVs), and strengthen local manufacturing. However, the policy still requires final approval from the Economic Coordination Committee (ECC) and the federal cabinet.
The proposed policy sets an ambitious target of increasing vehicle exports to $6 billion, and auto-parts exports to $1.2 billion by the fiscal year 2030–31. It also aims to improve the competitiveness of Pakistan’s automotive industry by reducing import duties, encouraging local production, and introducing incentives for manufacturers.
Prime Minister Approves Draft Auto Policy 2026-31 to Boost Vehicle Exports
The draft policy proposes a phased reduction in import duties on electric vehicles to make them more affordable and encourage their adoption. It also suggests lower tariffs for smaller electric cars priced below $15,000.
Under the proposed tax structure, battery electric vehicles (BEVs) will continue to face a sales tax rate of 1% from 2026 to 2031. Range-extended electric vehicles (REEVs) will be taxed at 6%, while plug-in hybrid electric vehicles (PHEVs) will face a rate of 9%.
The government has rejected the International Monetary Fund’s proposal to increase the sales tax on EVs to 18%. However, the draft policy proposes a 10% federal excise duty on electric vehicles valued above $75,000.
These measures aim to support the adoption of electric mobility while maintaining different tax rates for various vehicle categories.
EV Financing Limit to Increase to Rs. 10 Million
The proposed policy also aims to make electric vehicles more accessible through improved financing options.
The maximum financing limit for EVs is set to increase from Rs. 3 million to Rs. 10 million. The maximum repayment period will also extend from three years to five years.
The changes could allow buyers to finance more expensive electric vehicles over a longer period, making monthly repayments more manageable for some consumers.
Auto Manufacturers to Face Export Targets
The draft policy introduces mandatory export targets for vehicle manufacturers as part of the government’s plan to expand Pakistan’s presence in international markets.
Companies that meet their export targets will qualify for compensation equal to 5% of their export value. Manufacturers that increase exports beyond the previous year’s level could receive an additional incentive of 10%, according to the proposal.
However, companies that fail to meet their targets will face penalties. Manufacturers that miss their export targets for two consecutive years could also lose their manufacturing certificates.
The policy aims to encourage automakers to expand exports instead of relying primarily on domestic sales.
See Also: How to Buy an Electric Rickshaw on 0% Markup Installments in Pakistan? Complete Guide
Focus on Local Manufacturing and Lower Tariffs
The government also plans to increase the use of locally manufactured auto parts. Companies that fail to meet localization targets could lose the incentives offered under the policy.
In addition, automotive tariffs are expected to decline to 15% by FY2031. The proposed reduction aims to increase competition and improve efficiency across the automotive sector.
The policy seeks to develop a stronger local supply chain and reduce dependence on imported components while encouraging manufacturers to improve the quality and competitiveness of their products.
New Levy to Fund Industry Development
The draft policy proposes introducing an Automotive Development Levy (ADL) on vehicles with engine capacities above 1,000cc.
The levy is expected to generate more than Rs. 232 billion over five years. The government plans to use the funds to support export incentives, industrial development, and technological upgrades in the automotive sector.
Legislation for the levy is targeted for completion by December 2026.
Pakistan Automotive Testing Institute Proposed
The government also plans to establish the Pakistan Automotive Testing Institute to strengthen technical capabilities within the industry.
The proposed institute will support research, vehicle testing, certification, and independent audits. These functions could help improve vehicle quality, ensure compliance with relevant standards, and support the development of locally manufactured vehicles and components.
Final Approval Still Pending
The draft Automotive Policy 2026–31 outlines a broad plan to transform Pakistan’s automotive industry through export growth, electric mobility, local manufacturing, and technological development.
However, the proposals are not yet final. The policy must receive approval from the ECC and the federal cabinet before the government can formally implement the proposed measures.
If approved, the policy could reshape the automotive sector over the next five years by placing greater emphasis on exports, investment, and domestic industrial capacity.
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