By Pakistan Prime Minister Shehbaz Sharif has approved (proposed) a new five-year automotive policy aimed at transforming the country’s automobile industry, increasing vehicle exports, encouraging electric vehicle (EV) adoption, and strengthening local manufacturing. The policy sets an ambitious target of increasing Pakistan’s automotive exports to $6 billion by 2030-31 while introducing significant changes to vehicle taxation, import duties, electric vehicle financing, and local production requirements.
One of the major highlights of the new automotive policy is the government’s decision to reject the proposal to increase sales tax on electric vehicles to 18 percent, as suggested by the International Monetary Fund (IMF). Instead, the government plans to maintain preferential tax rates for different categories of electric vehicles to encourage consumers and manufacturers to shift towards cleaner transportation.
Pakistan Auto Policy 2026-31: Reduced Taxes on Electric Vehicles
The new automotive policy introduces a gradual reduction in sales tax on electric vehicles until 2031. Under the proposed tax structure, battery electric vehicles (BEVs) will attract just 1 percent sales tax from 2026 to 2031.
Meanwhile, range-extended electric vehicles (REEVs) will be subject to 6 percent sales tax, while plug-in hybrid electric vehicles (PHEVs) will attract 9 percent.
The policy also introduces a 10 percent federal excise duty on electric vehicles valued above $75,000. Lower tariffs will apply to smaller electric vehicles priced below $15,000, making affordable EV options a priority.
These measures are expected to encourage investment in electric vehicle manufacturing and make EV ownership more accessible to Pakistani consumers.
Import Duties to Be Reduced to 15 Percent by 2030-31
Another major component of the five-year automotive policy is the gradual reduction of import duties on vehicles. The government plans to bring the applicable tariff down to 15 percent by 2030-31.
The reduction is intended to improve competition, encourage investment, and bring Pakistan’s automotive sector closer to international market standards.
The government also aims to develop a more competitive automobile industry by promoting local manufacturing, technology transfer, and export-oriented production rather than relying heavily on imported vehicles and components.
EV Financing Limit Increased to Rs10 Million
To encourage electric vehicle adoption, the new policy proposes increasing the vehicle financing limit from Rs3 million to Rs10 million.
Additionally, the maximum repayment period will be extended from three years to five years.
This change is expected to provide greater financial flexibility to consumers interested in purchasing electric cars and other eligible vehicles.
The policy also highlights the importance of making small and affordable cars accessible to low-income households, indicating that affordability will remain an important part of Pakistan’s automotive development strategy.
Automotive Development Levy to Generate Rs232 Billion
The government plans to introduce an Automotive Development Levy on vehicles with engine capacities above 1,000cc. The levy is expected to generate more than Rs232 billion over five years.
The funds will be directed towards export incentives, industrial development programmes, and technological upgrades for local auto parts manufacturers.
According to the policy framework, legislation for implementing the levy is expected to be introduced by December 2026.
The initiative is intended to create a dedicated financial mechanism for strengthening the domestic automobile industry and supporting manufacturers in improving production standards.
$6 Billion Vehicle Export Target by 2030-31
Increasing exports is one of the central objectives of Pakistan’s new automotive policy. The government wants vehicle manufacturers to become more export-oriented and reduce the industry’s dependence on domestic sales.
Under the proposed export framework, manufacturers will have mandatory export targets. Companies will receive compensation equivalent to 5 percent of their export value, along with an additional 10 percent incentive on exports exceeding the previous year’s performance.
However, manufacturers failing to achieve their assigned targets will face penalties. If a company misses its export targets for two consecutive years, its manufacturing certificate may be cancelled.
The policy also establishes a target of increasing auto parts exports to $1.2 billion by 2030-31. Local production targets will also be introduced for auto parts manufacturers, with companies failing to meet the requirements potentially losing their incentives.
Pakistan Automotive Testing Institute to Be Established
Quality, safety, and consumer protection are also major priorities under the new automotive policy.
The government plans to establish a Pakistan Automotive Testing Institute to support research, vehicle certification, and independent third-party audits.
International safety standards will apply to both locally assembled and imported vehicles. The policy also proposes including buyer protection clauses in company contracts to strengthen consumer rights.
Furthermore, the automobile sector will undergo audits twice a year. Payments related to local production and export incentives will also be subject to third-party verification to improve transparency and accountability.
The policy additionally proposes new training targets to develop a skilled workforce for Pakistan’s automotive and auto parts manufacturing industries.
What the New Auto Policy Means for Pakistan’s Automotive Industry
Pakistan’s five-year automotive policy could represent a major shift in the country’s automobile sector. Reduced EV taxation, improved financing facilities, lower import tariffs, and export-linked incentives are designed to encourage investment and increase competition.
For electric vehicle manufacturers, the continuation of lower sales tax rates could provide an opportunity to expand their product portfolios and make EVs more affordable. Meanwhile, local auto parts manufacturers may benefit from technology development programmes and export incentives.
The success of the policy will ultimately depend on effective implementation, infrastructure development, consistent taxation policies, and the ability of manufacturers to meet international quality and export standards.
With a $6 billion vehicle export target and a renewed focus on electric mobility, Pakistan is looking to move beyond a domestic automobile market towards a more competitive regional manufacturing and export industry.
Disclaimer: This article is based on the proposed Pakistan Auto Policy 2026-31 and available reports. The proposed measures are subject to final government approval and may change before implementation.
