Pakistan unveils 2026-31 auto policy with five-year tariff cuts and EV tax breaks

What the government announced

Information Minister Attaullah Tarar and Adviser to the Prime Minister for Industries and Production Haroon Akhtar Khan unveiled the policy at a press conference in Islamabad on Saturday [4]. It sets six priorities: affordable vehicles, export promotion, localisation, vehicle safety, electric vehicle adoption and transparency [4]. It proposes sales tax of 1% for fully electric vehicles, 6% for range-extended electric vehicles and 9% for hybrid electric vehicles [4]. Those rates are subject to approval by the International Monetary Fund, Akhtar said [4]. Electric vehicles priced up to $50,000 would be exempt from capital value tax, withholding tax and federal excise duty [4]. Anything above that is treated as a luxury item and taxed normally [4].

For buyers, the direction is lower prices and more choice [3]. The timing depends on annual tariff cuts and on IMF approval of the proposed rates [4]. Local parts makers warn that faster import liberalisation could weaken domestic manufacturing before it reaches scale [2]. The policy also sets export and localisation targets whose enforcement details are not yet public [4].

The State Bank of Pakistan's car financing limit would rise from Rs3 million to Rs10 million, with repayment stretched from three years to five [4]. The policy also adds 45 vehicle safety standards aligned with the UN's WP.29 code [4].

Why buyers may see lower prices

Akhtar said prices of all vehicles except luxury models would fall and that the manufacturing cost of automakers would come down [4]. Duties on completely built units, assembly plants and components will be lowered annually over five years [4]. For cars and SUVs above 1,801cc, customs duty is set at 40% in FY2026-27 and FY2027-28, then 30% in FY2029-30 and 15% in FY2030-31 [1]. The All-Pakistan Car Dealers Association's Shahid Ali estimated 600cc cars could be Rs300,000 to Rs400,000 cheaper as competition grows [3]. Vehicles around Rs20 million could be up to Rs1.5 million cheaper, he said [3].

Used-car imports already rose to 2,276 in September from 1,445 in August and 843 in June, Commerce Ministry figures show [3]. Almost all September imports came under the gift scheme, not the liberalised commercial channel [3].

The local industry warning

The Pakistan Association of Automotive Parts and Accessories Manufacturers warned about the plan to cut tariffs on imported parts to 15% [2]. It said that without addressing domestic cost disadvantages, the cut could weaken local manufacturing and leave Pakistan import-dependent [2]. The Pakistan Institute of Development Economics counts more than 15 assemblers in the country [2]. Capacity has more than doubled over the last decade, yet sales have stayed relatively stagnant and the industry still depends heavily on imported CKD kits [2].

Car production rose 37.1% in July-March FY2025 [2]. The Pakistan Economic Survey 2024-25 put output at 76,339 units, against 55,678 in the same period a year earlier [2]. Jeep, SUV, pickup and light commercial vehicle output rose 79.8% to 26,147 units [2]. The Express Tribune reported the recovery followed weak demand, high financing costs, inflation and exchange rate instability [2].

What happens next

The proposed electric vehicle sales tax rates still need IMF approval, Akhtar said [4]. The September draft was to undergo legal vetting by the Ministry of Law, and the finance ministry was to take it to the IMF [1]. The Express Tribune reported the draft was approved by the prime minister on 20 October and was expected to move to the federal cabinet for in-principle approval [2]. The policy sets an export target of $6 billion over five years [2]. Manufacturers get a 5% Duty Drawback on Local Taxes and Levies, plus an additional 10% as exports rise, conditional on meeting export and domestic manufacturing targets [4].

Akhtar warned that manufacturers missing those targets would face penalties and lose the rebate [4].