Pakistan Approves Auto Policy, Rejects Higher EV Sales Tax

Prime Minister Shehbaz Sharif has approved a five-year automotive policy aimed at strengthening local manufacturing, expanding exports and increasing competition in Pakistan’s vehicle market. The framework outlines tax incentives, export requirements, tariff reductions and institutional reforms for the industry through 2031.

The policy sets a target of raising vehicle exports to $6 billion while increasing exports of locally manufactured automotive parts to $1.2 billion by fiscal year 2030-31. It also seeks to improve technology, increase the use of domestic components and gradually reduce the industry’s reliance on imported vehicles and parts.

A central feature of the framework is the decision to reject the International Monetary Fund’s proposal for an 18% sales tax on electric vehicles. Sales tax on battery-electric vehicles will remain at 1% between 2026 and 2031. Range-extended electric vehicles will attract a 6% rate, while plug-in hybrid vehicles will be taxed at 9%.

The policy proposes gradually lowering import duties on electric vehicles, with additional concessions for smaller models valued below $15,000. However, electric vehicles priced above $75,000 would face a 10% federal excise duty. The measures are intended to support broader adoption while placing a higher levy on premium imports.

Electric-vehicle financing limits are set to increase from Rs3 million to Rs10 million, and the maximum repayment period will be extended from three years to five years. These changes are expected to make smaller electric vehicles more accessible to consumers who cannot afford large upfront payments.

Manufacturers will be assigned mandatory export targets under the new framework. Companies meeting their obligations could receive compensation equivalent to 5% of export value, with an additional 10% incentive proposed for exports exceeding the previous year’s level. Manufacturers missing targets for two consecutive years could have their production certificates cancelled, while companies failing to meet localisation requirements may lose incentives.

Automotive-sector tariffs are planned to fall to 15% by fiscal year 2030-31. The policy also proposes an Automotive Development Levy on vehicles with engine capacities above 1,000cc. The levy is projected to generate more than Rs232 billion over five years for export incentives, industrial-development programmes and technology upgrades for parts manufacturers. Related legislation is targeted for completion by December 2026.

The government also plans to establish the Pakistan Automotive Testing Institute to support research, vehicle certification and independent audits. Global safety standards would apply to locally manufactured and imported vehicles, while manufacturers would be required to include consumer-protection provisions in buyer agreements. Two audits would be conducted annually, and payments involving localisation and export incentives would undergo third-party review.