Prime Minister Shehbaz Sharif has approved the draft Automobile Policy 2026-31, offering tax concessions to new energy vehicles (NEVs) while continuing protection for existing conventional vehicle assemblers for four more years before customs duty on all cars falls to 15 percent in FY2030-31. The draft will now undergo legal vetting by the Ministry of Law, while the Ministry of Finance has been directed to take it up with the International Monetary Fund (IMF) for vetting, as the policy is being brought largely in line with the National Tariff Policy (NTP), with the proposed rates set to be implemented from the current fiscal year to offset the impact of the delay. During Wednesday’s proceedings, the prime minister made several changes to the proposed framework, including directing that Range Extended Electric Vehicles (REEVs) and Plug-In Hybrid Electric Vehicles (PHEVs) be treated separately from Battery Electric Vehicles (BEVs), overriding a committee proposal that had recommended equal treatment for all three categories. Under the prime minister’s revised approach, BEVs will receive the most preferential tax treatment, followed by REEVs and PHEVs.
Under the approved draft, NEVs, their completely knocked down (CKD) kits, parts, inputs and raw materials will be subject to only 1 percent sales tax, and NEVs will also be exempt from federal excise duty (FED), Capital Value Tax (CVT) and Withholding Tax (WHT). Hybrid electric vehicles and conventional Internal Combustion Engine (ICE) vehicles will meanwhile be treated equally in terms of duties and taxes, and the government will impose additional FED on conventional vehicles to offset some of the price reductions resulting from tariff cuts, though the prime minister directed that the proposed FED on conventional cars below 1,000cc be abolished entirely. Financing incentives for NEVs will also be expanded, with the maximum loan limit increasing from Rs3 million to Rs10 million and the financing tenor extending from three years to five years, while customs duty on imported charging stations will be set at 1 percent and battery swap stations will be supported through Viability Gap Funding. The policy envisages up to an 80 percent reduction in automobile tariffs with no regulatory duty, while additional customs duty on imported cars will end after two years, though overall protection available to existing assemblers will largely remain in place for the first two years before declining over the following two years.
The tariff structure lays out a gradual phase down across vehicle categories over the life of the policy. For cars and SUVs above 1,801cc, customs duty will be 40 percent, FED 60 percent and sales tax 25 percent in FY2026-27 and FY2027-28, before customs duty falls to 30 percent in FY2029-30 and 15 percent in FY2030-31, while FED and sales tax remain at 60 percent and 25 percent respectively. For vehicles between 1,001cc and 1,800cc, customs duty will be 50 percent, FED 15 percent and sales tax 25 percent during the first two years, declining to 40 percent in FY2028-29 and eventually 15 percent by FY2030-31. For cars up to 1,000cc, customs duty will remain at 50 percent with 25 percent sales tax during the first two years before falling to 15 percent by FY2030-31. Despite these reductions, the policy document projects limited immediate price relief for conventional vehicles, with prices of ICE vehicles up to 850cc expected to decline by only 5.5 percent in the first year because of the government’s decision to impose 4.5 percent additional customs duty, leaving their prices nearly equal to comparable NEVs. Prices of 1,500cc cars are projected to fall by around 11 percent, or roughly Rs650,000, by the fifth year, while the Toyota Fortuner’s price is projected to decline from Rs20.5 million to Rs18.6 million over the same period, a reduction of about 9 percent.
Beyond pricing and tax structure, the policy also seeks to increase automobile and parts exports by integrating locally manufactured components into global value chains, offering fiscally neutral duty and local tax drawback schemes and introducing legally binding, enforceable mandatory export regimes. The government aims to attract at least five anchor auto parts manufacturing firms and establish small and medium enterprise clusters around them, with manufacturing licences linked to agreements with principals for a share in global export markets, while separate CKD imports will be permitted for left hand drive vehicles. Parts imported for exports will face no duty, an Auto Parts Export Council will be established to coordinate export development, and a minimum domestic value addition requirement will be introduced to measure and enforce localisation. The broader objectives outlined in the policy include setting upfront performance targets with penalty and reward mechanisms, promoting electric vehicles across all vehicle categories, improving vehicle quality, lowering prices outside the luxury segment, and increasing competition around innovation, technology and improved vehicle features across Pakistan’s automobile sector.
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