ISLAMABAD: The government has proposed a sweeping restructuring of Pakistan’s automobile sector, with a new five-year policy aimed at boosting exports, increasing local production, encouraging new energy vehicles and opening the market to greater competition.
An inter-ministerial committee headed by Power Minister Sardar Awais Ahmad Khan Leghari has finalised seven key principles for amendments to the draft Automotive and Auto Parts Manufacturing Policy 2026-31.
The proposed framework seeks to move the industry away from long-standing dependence on tariff protection and towards export-linked incentives, higher domestic value addition, technological development and performance-based manufacturing requirements.
Automakers to face mandatory export targets Under the proposed policy, original equipment manufacturers (OEMs) would be required to meet legally enforceable export targets.
For manufacturers of cars, jeeps and SUVs, exports would increase from zero in 2026-27 to 12% of factory-gate production value by 2029-30 and 2030-31.
OEM exports are projected to rise from $160.89 million in 2027-28 to $596.1 million in 2030-31, with total exports estimated at $2.391 billion over the five-year period.
Tractor manufacturers would see their export requirement rise from 5% to 15%, while motorcycle and rickshaw producers would move from zero to 15%.
Auto-parts manufacturers would also be required to expand overseas sales, with exports projected to increase from $240 million in 2026-27 to $700 million in 2030-31.
Combined exports from OEMs and parts manufacturers are estimated at $4.586 billion during the policy period.
Export performance could also be linked directly to manufacturing licences. Companies missing their targets may face additional customs duties on imported CKD kits equal to the value of the export shortfall, while persistent non-compliance could result in cancellation of licences.
Incentives tied to exports and localisation
The committee has proposed a fiscally neutral Drawback of Local Taxes and Levies (DLTL) scheme.
Under the proposed mechanism, eligible exporters would receive support equal to 10% of net FOB export value, with an additional 5% available to companies recording at least 5% year-on-year export growth.
The scheme would be funded through Federal Excise Duty collected from internal-combustion-engine vehicles.
The government also plans to introduce Minimum Domestic Value Addition (MDVA) requirements to encourage greater localisation.
By 2030-31, domestic value addition would reach 40% for conventional cars, 45% for LCVs, 40% for trucks and buses, 80% for tractors and 90% for motorcycles and rickshaws.
For new energy vehicles, the requirement would rise from 10% initially to 15% by 2030-31.
Manufacturers would have to provide detailed information on components, suppliers, countries of origin, procurement costs, payroll and factory expenses. Localisation declarations would be submitted twice a year and could undergo third-party audits.
Auto tariffs could fall by up to 80%
A major element of the proposed policy is tariff reform.
The committee has recommended reductions of up to 80% in automobile tariffs, with regulatory duty and additional customs duty eventually being phased out.
The sector’s tariff structure would be aligned with the National Tariff Policy, with implementation for the automobile industry delayed by one year from FY2026-27.
Authorities would review the tariff regime after two years, taking into account energy prices, taxation, interest rates, exchange-rate conditions and export performance.
New tariff classifications would also be introduced for NEV trucks, buses, tractors and L6/L7-category vehicles.
The government expects lower tariffs to promote competition and help restrain vehicle prices, although higher Federal Excise Duty on conventional vehicles could partly offset the impact.
NEVs receive major policy push
The proposed framework places considerable emphasis on new energy vehicles (NEVs). Battery electric vehicles, range-extended electric vehicles and plug-in hybrids would receive similar treatment under the proposed NEV regime.
The package proposes a 1% sales tax on NEVs, components and raw materials, along with exemptions from FED, capital value tax and withholding tax.
The financing limit for NEV purchases could rise from Rs3 million to Rs10 million, while the maximum financing period would be extended from three to five years.
Hybrids, however, would continue to face tariff and sales-tax treatment similar to conventional vehicles.
Import duty on charging stations is proposed to fall to 1%, while battery-swapping infrastructure could receive viability-gap funding.
Govt projects $17.7bn in foreign exchange savings
The proposed reforms are also expected to reduce the country’s foreign exchange requirements by encouraging domestic manufacturing.
The committee estimates additional FED collection of approximately Rs349.94 billion during 2026-31.
Meanwhile, cumulative imports of completely built units between 2025-26 and 2030-31 are estimated at $38.75 billion in CIF terms.
Imports of CKD kits, parts and raw materials for locally manufactured vehicles are projected at around $21.09 billion, resulting in estimated foreign exchange savings of approximately $17.70 billion.
Auto Parts Export Council proposed
The government also plans to establish an Auto Parts Export Council (APEC) to connect Pakistan’s parts industry with international supply chains.
The proposed council would include representatives from the Ministries of Industries and Commerce, TDAP, the Engineering Development Board and the private sector.
Its responsibilities would include identifying overseas markets, promoting Pakistan as an automotive manufacturing base, arranging international exhibitions and business-to-business meetings, improving quality standards and addressing exporters’ concerns.
The policy also proposes contract manufacturing to utilise unused industrial capacity and complete digitalisation of Engineering Development Board approval procedures.
Existing SRO-based mechanisms would gradually be replaced by transparent, rules-based systems by FY2029-30.
Tougher safety and consumer protection rules
The proposed policy also seeks to strengthen vehicle safety, quality control and consumer rights.
Pakistan plans to implement 62 UNECE WP.29 standards already adopted in 2025 and introduce another 45 standards by 2029.
New legislation would provide a legal basis for enforcing vehicle safety requirements, while internationally accredited agencies could be engaged for compliance assessments.
A proposed Pakistan Auto Testing Institute would conduct essential vehicle testing, particularly to facilitate exports.
Automakers would also be required to provide customers with clearer information on vehicle prices and delivery schedules, including disclosure of potential price increases following advance bookings.
Policy projected to remain fiscally balanced
The committee estimates that additional FED revenues of Rs349.94 billion would be generated over 2026-31.
Against this, the proposed DLTL programme would cost around Rs191.03 billion, while reduced sales tax on PHEVs is expected to result in revenue losses of approximately Rs137.79 billion.
The combined budgetary impact is estimated at Rs328.83 billion, leaving an overall projected saving of Rs21.11 billion during the policy period.
However, annual projections suggest that the fiscal position could move from a Rs46.84 billion saving in 2026-27 to a Rs44.10 billion deficit by 2030-31.
Overall, the proposed policy represents a major change in the government’s approach to the automobile sector, placing greater emphasis on exports, localisation, competition, NEVs, international standards and technological upgrading.
The government hopes that tying incentives and manufacturing licences to measurable performance will help transform Pakistan’s auto industry into a more competitive and export-oriented sector integrated with global value chains.
