ISLAMABAD: Prime Minister Shehbaz Sharif on Tuesday approved the draft Auto Policy 2026-31, a five-year roadmap that targets $6 billion in auto exports, cuts tariffs to open the sector to competition, and puts electric vehicles on a sharply lower tax track.
The draft was presented to the prime minister by Law Minister Azam Nazeer Tarar and Adviser on Industries and Production Haroon Akhtar. No official statement was issued by the Prime Minister’s Office; sources in the federal government shared the final draft with the press. It will now go to the federal cabinet for in-principle approval, and then to parliament.
Exports take centre stage in the Auto Policy 2026-31
The policy sets a combined export target of $6.01 billion for vehicles and parts over five years: $256.6 million in 2026-27, rising to $671.8 million, $1.11 billion, $1.17 billion and $2.19 billion in the final year. Auto parts exports alone are targeted at $1.2 billion by 2030-31.
Manufacturers will face mandatory export targets, with a 5 per cent incentive on export value and an extra 10 per cent on growth over the previous year. Companies that miss their targets two years running could lose their manufacturing certificates.
Tariffs cut, EVs favoured over petrol cars
The draft aims to bring the sector into open competition by cutting tariffs on completely built-up units and CKD kits to 15 per cent by 2030-31.
For electric vehicles, the government has rejected the IMF’s proposal of an 18 per cent sales tax. Instead, battery electric vehicles will face 1 per cent sales tax during 2026-31, range-extended EVs 6 per cent and plug-in hybrids 9 per cent, while hybrids and conventional vehicles stay at 18 per cent. A 10 per cent federal excise duty applies to EVs valued above $75,000, and smaller EVs priced below $15,000 get lower tariffs.
An automotive development levy on vehicles above 1,000cc is expected to raise more than Rs232 billion over five years, funding export incentives and technology upgrades for parts makers. The government plans to enact the levy law by December 2026.
What it means for car buyers
To make EVs reachable, the financing limit rises from Rs3 million to Rs10 million, with repayment stretched from three to five years. The policy also promises a Pakistan Automotive Testing Institute to enforce international safety and quality standards, with funding for research, certification and third-party audits.
For car buyers, the direction is clear: cheaper small EVs, gradually falling import duties, and pressure on assemblers to export or lose perks. The open question is whether local manufacturers, long shielded by high tariffs, can compete once the walls come down.
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What is the export target in the Auto Policy 2026-31?
The policy targets $6.01 billion in combined vehicle and parts exports over five years, rising from $256.6 million in 2026-27 to $2.19 billion in 2030-31.
How will electric vehicles be taxed?
Battery electric vehicles face 1 per cent sales tax, range-extended EVs 6 per cent and plug-in hybrids 9 per cent during 2026-31. The government rejected the IMF’s proposal of 18 per cent on EVs.
What is the automotive development levy?
A proposed levy on vehicles above 1,000cc, expected to raise more than Rs232 billion over five years. The proceeds will fund export incentives, industrial development programmes and technology upgrades for parts makers.
When does the policy take effect?
The draft goes to the federal cabinet for in-principle approval, then to parliament. The government plans to enact the levy law by December 2026.
