By Ijaz Kakakhel

The government’s proposed Auto and Auto Parts Manufacturing Policy seeks to transform Pakistan’s automobile industry through stronger exports, accelerated electric vehicle adoption, greater localization, improved consumer protection and progressive tariff rationalization by 2030.

Official documents available with Wealth Pakistan show that the proposed policy places export development at the center of the next phase of automobile-sector reforms while gradually exposing domestic manufacturers to greater local and international competition.

Under the export-oriented framework, the government proposes a Duty and Tax Incentive for Localization scheme offering 5% baseline compensation and an additional 10% incentive on incremental exports. Mandatory Export Targets would also be introduced for original equipment manufacturers and Tier-1 manufacturers, with penalties for non-compliance.

A Vendor Upgradation and Technology Transfer Program (VUTTP) is proposed to strengthen domestic parts manufacturers, promote technology transfer and develop industrial clusters. An Export Facilitation Council would oversee export targets, market development and international trade promotion.

The proposed policy also places significant emphasis on New Energy Vehicles (NEVs). It envisages preferential General Sales Tax rates for NEVs manufactured in Pakistan and exemptions from Federal Excise Duty, Capital Value Tax and withholding tax, subject to a $75,000 threshold.

An Auto Development Levy (ADL) on internal combustion engine (ICE) vehicles is also proposed to support the transition towards NEVs, research and development, and vendor development.

The policy proposes a concessional customs duty of 5% on completely built-up battery electric vehicles valued up to $15,000 during FY2026-27 and FY2027-28. It also envisages financing of up to Rs10 million for NEVs for five years, along with the development of charging infrastructure, battery swapping, and Battery-as-a-Service facilities.

To encourage localization and affordable mobility, contract manufacturing would be allowed to utilize idle production capacity and reduce costs. The policy also recognizes L6 and L7 urban mobility vehicles as affordable alternatives to motorcycles and proposes phased and verifiable Minimum Domestic Value Addition Requirements from July 2027.

Consumer protection measures include the adoption of 45 additional UNECE WP-29 safety regulations, establishment of the Pakistan Automotive Testing Institute, and tighter regulation of used vehicle imports through third-party inspection and after-sales service requirements.

The policy also proposes capping vehicle booking advances at 20%, protecting booked prices and curbing the “on money” practice. EDB manufacturing certificates would be converted into binding 10-year agreements covering localization, exports and consumer-protection obligations.

A major area of reform is tariff rationalization. The proposed framework envisages progressively reducing tariff protection on completely built-up vehicles and rationalizing duties on imported raw materials, components, sub-components and assemblies by 2030, with the objective of improving competitiveness and integrating Pakistan’s automobile industry more closely with international markets.

The policy further proposes fully digitizing EDB approvals, quota allocation and monitoring through Pakistan Single Window, conducting biannual independent third-party audits and strengthening EDB-FBR enforcement against misclassification, scrap misdeclaration and undervaluation of imported auto parts.

The draft has undergone repeated reviews since June, with different government committees examining its alignment with the National Tariff Policy, industrial development objectives and the government’s wider economic reform agenda.

The draft policy was presented to the prime minister on June 2, 2026.

A committee under the minister for climate change was set up on June 2 for review. On June 4, a committee was set up under the deputy prime minister, and during its first meeting on June 8, a subcommittee was constituted under the minister for power.

The subcommittee held four meetings on June 9, 11, 13 and 14 and reached a consensus on major recommendations.

The recommendations were considered by the main committee during meetings on June 15, 16 and 17 and were presented by the deputy prime minister to the prime minister on June 19.

The prime minister subsequently constituted a new committee under the minister for power to align the policy with the National Tariff Policy.

The brief says the committee was tasked with reviewing the draft policy and contract documents and legislation; ensuring that these were consistent with one another and with the policy instructions given by the prime minister; and ensuring a robust implementation and enforcement mechanism with yearly targets, timelines, responsibilities, penalties, a sunset clause and a pre-defined feedback loop.

The brief says 14 meetings of the committee had been convened, during which extensive deliberations took place. It says the draft policy was again presented to the prime minister on September 7 and 9, 2026, after which the prime minister constituted a new committee under the minister for law and justice.

The document says seven meetings of that committee had been conducted to finalize the policy.

Credit: INP-WealthPk