Pakistan’s government has rejected a proposal by the International Monetary Fund (IMF) to impose an 18% sales tax on electric vehicles (EVs), opting instead for preferential tax rates under the proposed Auto Policy 2026–31. The policy framework, approved in principle by Prime Minister Shehbaz Sharif, aims to encourage electric mobility, reduce vehicle import tariffs, expand domestic manufacturing and increase automotive exports. The proposed measures outline different tax rates for battery electric vehicles, range-extended electric vehicles and plug-in hybrid models, alongside incentives intended to make eligible vehicles more accessible. The draft also proposes phased reductions in customs duties on imported electric cars. However, the policy remains subject to the required approval process and further engagement with the IMF, meaning the proposed tax rates and other measures should not yet be treated as fully implemented.
Under the proposed tax structure, battery electric vehicles (BEVs) would be subject to a 1% sales tax, while range-extended electric vehicles (REEVs) would face a 6% rate and plug-in hybrid electric vehicles (PHEVs) a 9% rate. Conventional internal combustion engine vehicles and hybrid vehicles would generally face an 18% rate under the proposed framework. The government is also considering lower customs duties for eligible imported electric vehicles priced up to $75,000. According to the reported draft, customs duty on these vehicles would initially decline from 50% to 25%, with a further reduction to 15% planned by fiscal year 2030–31. Separate proposals include a 5% tariff for smaller electric vehicles priced below $15,000 during the first two years of the policy and a 1% tariff on imports of specific non-localised electric-vehicle parts. These measures are intended to lower import costs while encouraging greater adoption of electric mobility.
The policy also proposes changes to vehicle financing to address affordability concerns. The financing limit for new energy vehicles would rise from Rs3 million to Rs10 million, while the maximum repayment period would increase from three years to five years, subject to implementation through the relevant regulatory framework. The proposed changes could allow eligible buyers to finance more expensive vehicles over longer periods. At the same time, the policy seeks to reduce Pakistan’s overall automotive tariff structure, with the average tariff proposed to fall to 15% by the end of the policy period. Higher federal excise duty is also envisaged for certain vehicle categories, including electric vehicles valued above $75,000 and conventional vehicles with engine capacities exceeding 2,000cc. The proposed Automotive Development Levy is expected to generate approximately Rs232 billion over five years, with funds intended to support export incentives and industrial development initiatives.
Increasing exports is another central objective of the Auto Policy 2026–31. The proposed framework sets a target of around $6 billion in automotive and auto-parts exports over five years, with mandatory export targets for manufacturers. Reported projections include approximately $2.078 billion in exports of cars, jeeps, SUVs and double-cabins, $233.4 million in tractor exports, $409.4 million in motorcycles and rickshaws, and $3.29 billion in exports by parts manufacturers. The policy proposes incentives for companies that meet export commitments, while manufacturers that fail to meet their targets could face penalties under the framework. It also seeks to increase domestic value addition and improve the competitiveness of local suppliers. The proposed changes represent a broader effort to reshape Pakistan’s automotive sector through tariff reform, targeted EV incentives and export-led growth. Their eventual impact on vehicle prices, local manufacturing and consumer demand will depend on final approvals, implementation details and the industry’s response.
Follow the SPIN IDG WhatsApp Channel for updates across the Smart Pakistan Insights Network covering all of Pakistan’s technology ecosystem.
