Pakistan Auto Policy 2026–31 Gets PM Nod, EV Tax Relief Proposed

Prime Minister Shehbaz Sharif has approved the initial draft of Pakistan’s Auto Policy 2026–31 while directing officials to make further changes before the framework moves toward final approval. The proposed policy, being developed for the five-year period from 2026 to 2031, contains significant changes to the taxation of electric and hybrid vehicles and places additional emphasis on technology transfer and employment for skilled Pakistani workers.

The draft proposes stronger incentives for electric vehicles, particularly smaller models. Locally manufactured electric vehicles would qualify for a concessional sales tax rate of 1% on parts used in production. The proposed framework also seeks exemptions for electric vehicles from Federal Excise Duty, Capital Value Tax and Advance Income Tax, measures intended to reduce the tax burden associated with the emerging electric-vehicle segment.

Charging infrastructure is also covered under the proposed framework. Raw materials and parts used for manufacturing electric-vehicle charging stations would be subject to a proposed customs duty of 1%. The measure would support the development of infrastructure needed for wider adoption of electric transport while encouraging more local participation in equipment manufacturing and related industries.

For hybrid vehicles, the government is considering a gradual restructuring of import duties during the policy period. The draft proposes reducing duties on hybrid vehicles with engine capacities above 1,800cc from 50% to 30% over five years. A similar phased reduction from 50% to 30% is proposed for hybrid vehicles in the 1,501cc to 1,800cc category and for vehicles with engine capacities between 851cc and 1,000cc.

At the same time, the draft would remove existing sales-tax concessions for hybrid vehicles, creating a different tax treatment for hybrids compared with fully electric models. The combination of phased import-duty reductions and withdrawal of some concessions means the eventual effect on vehicle prices will depend on the final structure approved by the government. None of the proposed rates should be treated as final until the policy completes the remaining approval process.

The prime minister has also directed policymakers to strengthen provisions for technology transfer and create more opportunities for skilled Pakistani workers. These instructions indicate that the government wants the policy to extend beyond vehicle imports and taxation by encouraging domestic industrial capability and employment. Incentives for locally manufactured electric vehicles and charging-station components could become important elements of that strategy if they remain in the final version.

The next major stage is expected in October, when the government plans to consult the International Monetary Fund on the proposed auto policy. Further revisions may follow those discussions before the framework advances through the required government approval process. For Pakistan’s automobile industry, consumers and companies planning investments in electric and hybrid vehicles, the final policy will determine how quickly the proposed tax changes, manufacturing incentives and technology-transfer requirements take effect.