Pakistan has formally unveiled its five-year auto policy, promising cheaper cars, a sharp rise in exports and a rapid shift towards electric vehicles, in the government's most detailed announcement yet on the future of the country's automobile industry.
Special Assistant to the Prime Minister on Industries Haroon Akhtar Khan announced the Automotive Industry Development and Export Policy 2026-31 at a press conference in Islamabad on Saturday, alongside Information and Broadcasting Minister Attaullah Tarar. The policy sets a cumulative export target of $6 billion over five years, a goal set by Prime Minister Shehbaz Sharif, and links government support directly to how much manufacturers export and how much of each vehicle they build locally.
The scale of the ambition is clear from the starting point. Pakistan recorded only around $200 million in automotive exports in the previous financial year, most of it from auto parts makers, while vehicle manufacturers contributed very little. Under the new framework, manufacturers that meet their export targets will receive a 5 per cent drawback of local taxes and levies, with a further 10 per cent incentive on incremental exports. Companies that fail to meet their commitments will face penalties and will still have to fulfil minimum localisation targets, and no manufacturer will qualify for export rebates unless it meets both its export and its local manufacturing goals.
Cheaper vehicles sit at the centre of the announcement. Akhtar said the government would cut duties on completely knocked-down kits, components, sub-components and raw materials, bringing down manufacturing costs so that cars become more affordable for buyers. The duty reductions will be phased in gradually over five years, moving Pakistan's automotive tariff structure closer to internationally competitive levels. The government is particularly focused on making cars in the 850cc, 1,000cc and 1,300cc categories more affordable, alongside electric vehicles priced below $15,000.
The policy also takes aim at a long-standing complaint of car buyers. Original equipment manufacturers will no longer be allowed to collect advance payments exceeding 20 per cent of a vehicle's price, a cap designed to stop assemblers from holding large sums of buyers' money for months before delivery.
Electric vehicles receive the most generous treatment in the package. The government is targeting electric vehicles for 30 per cent of all new cars and two-wheelers sold within five years, and has proposed three sales tax rates: 1 per cent for fully electric vehicles, 6 per cent for range-extended electric vehicles and 9 per cent for plug-in hybrid electric vehicles. Electric vehicles priced below $50,000 would also be exempt from capital value tax, withholding tax and federal excise duty, while financing limits for electric vehicles would rise from Rs3 million to Rs10 million and repayment periods would extend from three to five years.
Charging infrastructure, one of the biggest obstacles to electric adoption, is addressed directly. The government will introduce viability gap financing for charging stations, cut sales tax on charging station equipment to 1 per cent and bring customs duty on it down to zero, in an effort to make it commercially viable for operators to build networks beyond the big cities.
Safety standards are also being overhauled. Akhtar said the government would introduce 45 additional vehicle safety standards under the United Nations' WP.29 framework, bringing Pakistan's requirements closer to international norms, and would carry out third-party audits every six months to ensure the policy is implemented transparently.
The package is designed to remain revenue-neutral under Pakistan's IMF programme. Revenue collected from petrol and diesel vehicles will fund the incentives, but cars with engines of 1,000cc or below will face no additional taxes, since the government considers them affordable options for lower- and middle-income households. The same revenue will also support export rebates, research and development and the development of local parts vendors. The proposed sales tax rates for electric vehicles themselves remain subject to approval from the International Monetary Fund.
The announcement comes as electric vehicle sales are already climbing fast. Akhtar said electric two-wheeler sales rose from 60,000 in 2024-25 to 242,000 in 2025-26, while electric four-wheeler sales increased tenfold over the same period, and two-wheeler sales in July and August were five times higher than a year earlier.
Tarar used the press conference to criticise decades of protectionist policies that kept import duties high to support the local industry, arguing that manufacturers had failed to deliver enough innovation and value addition despite that protection, and had not given ordinary consumers the facilities available to buyers in other countries. He said the prime minister was particularly focused on affordable transport for middle- and lower-middle-income households, pointing to the growing use of electric scooters and motorcycles, including by women travelling to schools, colleges and workplaces.
The policy still has steps to clear before its tax measures take effect. The draft was approved by the prime minister on 20 October, and only days ago a Senate committee was told it had not yet been finalised and would be sent to the IMF for review. Saturday's announcement marks the government's formal public unveiling, but the sales tax rates and other fiscal measures will need IMF clearance, cabinet endorsement and legislation before they become law. For buyers and manufacturers alike, the coming weeks will show whether the promises made in Islamabad turn into showroom prices.
