Cheaper Cars or Costlier Promises? Reading Pakistan's Auto Policy 2026-31

It was two high-ranking officials who made a promise that all Pakistani car buyers have heard before – prices will go down – before the press in Islamabad on 7 November 2026. The price of all vehicles (except luxury vehicles) would drop, said Haroon Akhtar Khan, prime minister's adviser on industries and production. Information Minister Attaullah Tarar described the plan as one of the measures for providing affordable transportation.

This time the pledge is taking place over a five-year roadmap for the automotive industry, which is focused on EVs and exports. It's a serious bid to overhaul an industry which traditionally built cars for a protected domestic market. It also poses unanswered questions on finance, timing and its goals being achieved. The headline announcement is as important as those questions.

What the government announced

These were the 6 priorities that were named by the officials: affordable vehicles, exports, local manufacturing, safety, electric mobility and transparency. Duties on cars that are fully assembled, as well as on parts and raw materials, have been gradually reduced over five years to be expected to reduce the production cost.

The biggest concessions are offered to electric vehicles. The sales tax is to be 1 per cent for fully electric cars, 6 per cent for range-extended cars and 9 per cent for plug-in hybrids, says Dawn. The EVs would be exempt from all capital value tax, withholding tax and federal excise duty up to $50,000. The interest rate for the State Bank's scheme would increase from Rs3 million to Rs10 million, and the repayment period would be increased from 3 to 5 years. No customs duty would be levied on charging equipment, just 1 per cent sales tax.

Buyers are also entitled to an engine and battery warranty that suits them, as ProPakistani claims that car manufacturers will not accept more than 20 per cent of a car's price as an advance payment. But in a market where they've been paying first and waiting for months for delivery, that might be as important as a tax cut. Dawn notes that 45 more safety criteria will follow the UN's WP.29.

This should be taken with a pinch of salt by readers. The announcement was made on a day when the whole document has yet to be published and Daily Pakistan said it would be published the following week. There are also conflicting reports about what its status is. ProPakistani and Daily Pakistan say the policy has been approved while Dawn reports that the cabinet approval process was underway. The three tax rates for electric vehicles are still under consideration of the IMF.

Why the policy came now

The reason is, of course, that the previous policy ended on 30 June 2026, and the new policy was stalled for several months, with committees and industry debating its implementation. The real issue is the business model itself. Speaking to Arab News in August, Shehryar Qadir, the president of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) said the previous two policies favoured assembly plants but not real industrial depth.

Demand is picking up again and that provides some leeway. According to industry data, passenger car sales increased by approximately 39 per cent to around 156,000 units in 2025-26. However, exports of roughly $190-$200 million per year have seen very little increase, and Akhtar admitted that a decade of past policies had not succeeded in boosting exports.

The electric agenda is also moving forward - as are the Energy arguments. Akhtar drew a connection between the attention on EVs with the recent tensions in the region, and Tarar likened the chance to the fast growth of solar power in Pakistan. The best proof for his point is Data: Dawn is seeing sales of 240,000 electric motorcycles and scooters, compared with 60,000 a year ago.

Who gains, and who may not

The first question is about who really ends up with the less expensive vehicle. The focus is on middle and lower-middle class families, however, ProPakistani's report of the same press conference states Akhtar is hoping this price cut will help middle and upper-income families. A similar sentiment was expressed by Yousuf M. Farooq of Chase Securities in August, when he noted that basic models such as the Alto and Cultus were not getting any relief whereas buyers of much higher-priced new energy vehicles were.

A loan of Rs10 million and a tax break of up to $50,000 would allow a family with a high price budget to afford a very expensive car. They do much less for a family that's deciding on a used hatchback versus a motorcycle. The two-wheeler segment might be the right segment for Pakistan's electric shift, but a significant portion of public sentiment could be directed towards the wrong end of the market.

The second question is who pays? The money generated from selling petrol and hybrid cars of more than 1,000 cc is supposed to be used to finance the incentives, thus keeping the package balanced to the budget under the IMF programme. In October, Nukta had said that the levy would generate over Rs232 billion during five years. Other estimates run the gamut. A Nukta report in September revealed that concessions of up to Rs3 million can be given to each of the 50,000 new energy vehicles and the net fiscal surplus could be Rs21.11 billion. These are based on differing assumptions, and on drafts which may have been altered, so none of these figures should be cited as the final cost.

The third sector is the parts industry, PAAPAM says that this sector offers approximately 80 per cent of the jobs in the sector. These members assert that it has a cost disadvantage of 34 per cent from raw material imports, cost of energy, high taxes and high interest rates. In August, Qadir warned that if tariffs go down to 15 per cent, without closing that gap, “the industry will collapse”. Lower import costs benefit consumers, but they may also result in the loss of factories, and a good policy will balance both impacts.

The $6 billion question

The most eye-catching figure is the export goal. There will be an increase in exports, which authorities say would grow from approximately $200 million to $6 billion per year, according to some coverage, a 30-fold rise in exports annually. The draft seen by Arab News in October states otherwise: $6 billion in five years of combined vehicle and parts exports. That would cost about $1.2 billion annually, which is about six times what it costs now. The final expression is important as it is easier to defend an ambitious target than an impossible one.

These incentives are tangible. The exporters would get a 5 per cent rebate on local tax and levy and additionally an extra 10 per cent export incentive in addition to local manufacturing incentive, provided they achieve export and local manufacturing targets. They are penalized if they are missing. The October draft was more radical with 1-3 per cent of production value charged, and a loss of manufacturing certificate if two successive drafts failed.

Not everyone is sure. Abdul Rehman Aizaz, chair of the Pakistan Association of the Automobile Producers (PAAPAM), told Arab News that it is difficult to boost exports simply by establishing a target, as security fears deter foreign buyers from coming to the factories. An unnamed official at a Japanese automaker was even more adamant in saying the number was unattainable. Pakistan would be facing the competition of Indian and Chinese producers on a much larger scale and a mandate can't provide a large-scale.

What it means for Pakistan's future

If successful, the policy would reduce the import of fuel, develop a parts industry that could export and provide choice for buyers. The 30 per cent electric share of new vehicle sales by 2030, which is part of the existing electric vehicle policy, would also appear closer to the vest, particularly if two-wheelers keep their pace of growth.

Failure is a familiar risk if it doesn't work. Pakistan might sell imported fuel and buy imported electric kits and batteries, but assembly plants will get the benefits. The local value addition target for new energy vehicles is 15 per cent by 2030-31 as compared to 40 per cent for passenger cars, as has been reported. That is a space that needs to be closely examined. There is also a credibility issue: they have to rely on five years of stable tariff reductions and tax policy, in a country where budgets and lenders can change policy.

The way forward

The first step of this policy is transparency, which is one of the six policy priorities. The government must release the full text and tariff schedule, including the actual export goal and the stance of the government with the IMF. It should also dispel any doubts regarding the engine size, which Dawn and Nukta say is 1,000cc and The News says 800cc.

Then there should be support to follow social value. Electric motorcycles, rickshaws and small commercial vehicles have the people who are most vulnerable to fuel prices and should be treated no differently from fancy cars. If this 30 per cent is to have any significance outside the largest cities, so too will be the need for public charging to be available.

Last but by no means least, the government should do something about the cost disadvantage, especially in energy and financing, that parts makers talk about, at the same time as they cut tariffs. The most effective way to implement local content regulations is to have local suppliers who can compete. The progress made under the policy would be measurable in independent published progress reports annually, whereas this policy would be easier to evaluate than the previous ones, as it would provide a clear indication of the movement of prices, exports and local content as promised.

For CSS and PMS aspirants

This topic is useful for the following papers of the CSAT: Pakistan Affairs, Current Affairs, Economics and the Essay paper in particular the questions related to industrial policy, import substitution and export-led growth, energy security, climate policy and IMF conditionality. Use it to demonstrate a choice between higher consumer prices and more jobs, or green incentives or fairness and revenue. Be careful with the use of figures. Write that the targets were set by the government, that they have been reported in various ways, and that the tax rates were approved by the IMF when they were announced.