New Auto Policy approved as Pakistan rejects IMF proposal to raise EV tax
Prime Minister Shehbaz Sharif has approved the draft of a five-year Automotive and Auto Parts Manufacturing Policy 2026-31, which aims to boost local manufacturing, lower import tariffs in phases, and set a vehicle and auto parts export target of $6 billion, 24NewsHD TV reported on Tuesday.
The government has also rejected the International Monetary Fund’s (IMF) proposal to raise the sales tax on electric vehicles (EVs) to 18 per cent.
According to the policy document, the government plans to increase vehicle exports to $6 billion and gradually reduce import duties to make the sector more competitive.
The policy also introduces export targets for vehicle manufacturers, incentives for companies that increase exports and penalties for those that fail to meet their commitments.
Under the approved framework, battery electric vehicles will face a sales tax of one per cent from 2026 to 2031, while range-extended electric vehicles will be taxed at six per cent.
A nine per cent sales tax has been proposed for plug-in hybrid vehicles.
The policy also proposes a 10 per cent federal excise duty on electric vehicles valued at more than $75,000.
Import duties on electric vehicles will be reduced, while smaller electric vehicles priced below $15,000 will benefit from lower tariffs to improve affordability.
To encourage consumers to switch to electric vehicles, the government has approved proposals to raise the financing limit from Rs3 million to Rs10 million and extend the repayment period from three to five years.
The policy also stresses making smaller vehicles more affordable for low-income consumers.
The policy also provides for a gradual reduction in vehicle import duties, with tariffs targeted to fall to 15 per cent by 2030-31.
An Automotive Development Levy will be imposed on vehicles with engine capacities above 1,000cc to generate funds for industrial development and export promotion.
The government expects to collect more than Rs232 billion through the levy over five years.
The funds are proposed to support export incentives, technology upgrades for auto-parts manufacturers and industrial development programmes.
Under the export plan, auto-parts manufacturers will be expected to increase exports to $1.2 billion by 2030-31.Vehicle manufacturers will also face mandatory export targets.
Companies that increase exports will be eligible for incentives equal to five per cent of export value, with an additional 10 per cent incentive proposed for exports exceeding the previous year’s level.
Manufacturers that fail to meet their export targets may face penalties, while companies that miss the targets for two consecutive years could lose their manufacturing certificates.Incentives may also be withdrawn from companies that fail to meet local production targets.
It also proposes establishing a Pakistan Automotive Testing Institute to support research, certification and independent audits.International safety standards would be introduced for both locally manufactured and imported vehicles, while vehicle manufacturers would be required to include consumer-protection provisions in their agreements with buyers.
To improve transparency, the policy proposes two audits each year of the auto sector, including third-party audits of local production and export incentive payments.New targets will also be set for training skilled workers for the industry.
The government aims to introduce legislation governing the Automotive Development Levy by December 2026.
The policy is expected to guide the sector over the next five years, with a focus on exports, local production, electric mobility, consumer protection and industrial competitiveness..
