Pakistan’s federal government has introduced a new automotive policy aimed at reducing vehicle prices, expanding electric vehicle adoption, strengthening domestic manufacturing and increasing exports over the next five years. Announced on November 7, 2026, by Information Minister Attaullah Tarar and Adviser to the Prime Minister for Industries and Production Haroon Akhtar Khan during a press conference in Islamabad, the policy outlines a series of measures intended to reshape the country’s automobile industry. The government has identified six major pillars for the initiative: affordable vehicles, export promotion, localisation, vehicle safety, electric vehicle development and transparency. According to the officials, the policy has been developed following consultations with stakeholders, technical analysis and a review of international automotive industry models. The process of obtaining cabinet approval has also begun.
A major objective of the policy is to make vehicles more affordable, particularly for middle-income and lower-middle-income households, by gradually reducing manufacturing costs and import duties. Haroon Akhtar said the government expects vehicle prices to decline over time, with luxury vehicles excluded from the proposed price reductions. Duties on completely built units (CBUs), assembly plants and automotive components will be reduced annually, with the aim of establishing competitive tariff structures within five years. The government also intends to reduce the cost of imported raw materials through its broader tariff policy. However, officials stressed that Pakistan’s automotive industry should not remain dependent on imported fully assembled vehicles or continue relying primarily on assembling completely knocked-down (CKD) kits. Instead, manufacturers will be encouraged to establish stronger domestic production capabilities and increase the use of locally manufactured components. The policy also introduces mandatory localisation targets for automobile manufacturers.
Export development is another major component, with the government setting a cumulative automotive export target of $6 billion over five years. Haroon Akhtar noted that Pakistan’s automobile exports remain limited, with overseas shipments largely consisting of automotive parts rather than vehicles manufactured by local assemblers. To encourage export growth, the government plans to introduce a rewards and penalty mechanism under which eligible exporters will receive a 5 percent Duty Drawback of Local Taxes and Levies (DLTL), alongside an additional 10 percent incentive on incremental annual export growth. However, these benefits will be conditional on manufacturers meeting their prescribed export and domestic manufacturing targets. Companies that fail to achieve the required targets may face penalties and will not qualify for DLTL rebates. The government has linked export incentives with local manufacturing performance to encourage investment in production facilities, expand industrial activity and create employment opportunities. The policy also addresses additional charges commonly known as on-money during vehicle bookings by requiring manufacturers not to collect advance payments exceeding 20 percent of a vehicle’s price.
Vehicle safety has also been included as a priority, with the policy introducing 45 additional safety standards aligned with the United Nations WP.29 code. The government intends to strengthen safety requirements for both locally manufactured and imported vehicles, particularly in response to concerns involving defective brakes, tyre failures and road accidents associated with inadequate vehicle safety standards. The adviser said the introduction of internationally aligned requirements would improve the safety and quality of vehicles available in Pakistan. He also highlighted the need to address weaknesses in the used vehicle market, where imported vehicles may not always meet adequate safety requirements. Meanwhile, the policy seeks to address transparency in the automobile market through measures targeting booking practices and manufacturer responsibilities.
Electric vehicle development represents another significant part of the new policy, with the government seeking to accelerate its target of shifting 30 percent of all new vehicles in Pakistan to electric power by 2030. The proposed incentives include three sales tax categories: 1 percent for fully electric vehicles, 6 percent for range-extended electric vehicles (REEVs) and 9 percent for hybrid electric vehicles. These proposed tax rates remain subject to approval by the International Monetary Fund (IMF). Additionally, electric vehicles priced up to $50,000 will be exempt from capital value tax, withholding tax and federal excise duty. Vehicles exceeding this price threshold will be treated as luxury items and taxed under the applicable normal taxation framework. The government also plans to expand the State Bank of Pakistan’s existing car financing facility, which currently provides financing of up to Rs3 million for ordinary cars, to Rs10 million for electric vehicles. The financing repayment period will also increase from three years to five years, making longer-term financing available to prospective EV buyers.
The policy further introduces incentives for developing electric vehicle charging infrastructure across the country. Haroon Akhtar explained that the government intends to address the viability gap faced by businesses interested in establishing charging stations, as operators currently face limited demand while consumers remain reluctant to purchase electric vehicles without adequate charging facilities. To support investment, sales tax on charging station equipment has been reduced to 1 percent, while customs duty has been removed. The government also plans to fund the existing viability gap to encourage infrastructure development. To finance the proposed incentives while maintaining revenue neutrality under Pakistan’s IMF programme, the government intends to collect an automotive development levy from internal combustion engine vehicles with engine capacities above 1,000cc. Revenue generated through this mechanism will also support export rebates and research and development activities. Ordinary petrol vehicles with engine capacities below 1,000cc will not face changes under the policy, protecting consumers who rely on smaller vehicles.
Officials also highlighted the growing adoption of electric mobility following the introduction of the New Energy Vehicle Policy 2025-30. According to Haroon Akhtar, sales of electric two-wheelers increased from 60,000 units in FY2024-25 to 240,000 units in FY2025-26, indicating rising interest in electric motorcycles and scooters. Information Minister Attaullah Tarar described the expansion of electric motorcycles and scooters as an important requirement for Pakistan, particularly because the country remains vulnerable to fluctuations in international oil prices. Higher oil prices increase the import bill, put pressure on the current account and contribute to inflation, eventually affecting consumers through increased fuel costs. He also criticised previous protectionist policies, arguing that higher import duties and support for local manufacturers had not resulted in sufficient innovation or value addition within the domestic automobile industry.
The government has also addressed the registration of non-custom-paid vehicles in Khyber Pakhtunkhwa, where a formal mechanism is being developed to ensure that vehicles are registered through the Customs and Excise departments. Attaullah Tarar said the province now has a transparent administrative setup working on the issue, adding that problems involving unregistered vehicles were also being addressed in connection with security concerns. Overall, the new automotive policy seeks to combine affordability, domestic industrial development, export expansion and electric mobility within a single framework. Its implementation, including the proposed tax incentives and tariff changes, will determine how effectively the measures translate into lower vehicle prices, stronger local manufacturing, improved charging infrastructure and increased exports from Pakistan’s automobile industry.
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