The federal government has put its proposed Auto Policy 2026 to 2031 for electric vehicles and hybrid cars on hold following pressure from the local automotive industry. The policy had been developed after consultations with industry stakeholders and was intended to reduce Pakistan dependence on imported petroleum products while supporting the transition toward more fuel-efficient vehicles. However, concerns from local manufacturers have prompted the government to reconsider the proposed framework. The policy was expected to establish a new direction for electric vehicles, hybrid electric vehicles and plug-in hybrid vehicles, but its implementation has now been delayed as authorities review the concerns raised by industry representatives. The development comes at a time when consumers and automakers are already facing uncertainty over taxation and the future direction of incentives for alternative-energy vehicles in Pakistan.
One of the major issues affecting the hybrid vehicle market has been the increase in the applicable sales tax. From July 1, 2026, the sales tax on hybrid electric vehicles and plug-in hybrid vehicles increased from the previously concessional rate of 8.5 percent to 25 percent after the earlier concession was not extended through the Finance Act for fiscal year 2026 to 2027. The change increased the cost of hybrid vehicles and affected purchasing decisions in a market where hybrid technology had benefited from lower taxation. The higher tax burden has also contributed to uncertainty among manufacturers, with some companies delaying vehicle deliveries while waiting for greater clarity regarding the government’s next policy framework. Earlier proposals had included measures intended to support electric mobility and attract investment in local vehicle manufacturing, making the government’s decision to put the policy on hold significant for companies planning future products and investments in the sector.
The proposed Auto Policy 2026 to 2031 had been expected to introduce measures aimed at increasing investment in Pakistan automotive sector and expanding local vehicle manufacturing. Earlier government plans indicated that the framework would include measures to encourage the adoption of electric vehicles, plug-in hybrid electric vehicles and hybrid vehicles through targeted incentives. The proposed policy was also expected to introduce international safety standards for locally manufactured vehicles, with the objective of improving vehicle quality and bringing domestic production closer to international practices. Other proposals under discussion included changes to vehicle import and assembly tariffs, along with measures intended to encourage localization. The government had also been examining different tax arrangements for electric and hybrid vehicles as part of its wider efforts to develop a framework for new energy vehicles.
Prime Minister Shehbaz Sharif has now assigned Deputy Prime Minister and Foreign Minister Ishaq Dar the task of preparing a new auto policy following the decision to put the previous framework on hold. The government’s next policy will therefore determine how Pakistan approaches electric vehicles, hybrid vehicles and local automotive manufacturing after the current uncertainty. The decision also comes as the market adjusts to higher taxes on hybrid vehicles and as the government considers how taxation, investment, local production and new energy vehicle adoption should be balanced. Earlier policy discussions had placed greater emphasis on reducing petroleum dependence and encouraging cleaner forms of transportation, while the local industry has raised concerns over the potential impact of policy changes on existing manufacturers and the domestic automotive market. The revised policy is expected to provide the basis for the government’s next steps on EVs, hybrids and the broader transition of Pakistan automotive sector.
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