PM Shehbaz Sharif Gives In-Principle Approval to Auto Policy 2026-31

The policy will be placed before the Economic Coordination Committee (ECC) and the federal cabinet for approval after consultations with the IMF.

A meeting chaired by Prime Minister Shehbaz Sharif reviewed the draft of the Auto Policy 2026-31. The new policy aims to create a conducive environment for investment in the local automotive industry, increase domestic vehicle production and exports, develop the market and promote modern technologies.

Under the proposed policy, duties and taxes on imported hybrid vehicles are set to be reduced gradually over the next five years.

A proposal seeks to reduce the duty on hybrid vehicles up to 800cc and those between 851cc and 1,000cc from 50% to 30% over the five-year period.

Similarly, the duty on hybrid vehicles above 1,801cc is proposed to be gradually reduced from 50% to 30% over five years. A similar reduction has also been proposed for hybrid vehicles between 1,501cc and 1,800cc.

The draft policy also proposes reducing the duty on hybrid trucks from 30% to 15%, hybrid commercial vehicles from 60% to 30%, and hybrid buses from 30% to 15%.

The government has also proposed an environmental levy on larger vehicles to generate additional revenue and meet financial requirements.

According to sources, a 10% environmental levy is proposed on vehicles with engine capacities between 2,001cc and 3,000cc, while vehicles of 3,001cc and above could face a 19.5% levy.

The proposed levy is estimated to generate around Rs142.79 billion over five years, with the revenue expected to support exports and research and development.

Meanwhile, the Pakistan Association of Automobile Parts and Accessories Manufacturers (PAAPAM) has expressed concerns over the draft policy and called on the prime minister to review its proposed measures.

PAAPAM Chairman Usman Malik said the proposed incentives for New Energy Vehicles (NEVs), along with reduced localisation requirements, could negatively affect Pakistan’s domestic auto-parts industry and undermine years of investment in local engineering.

The association has particularly objected to the proposed 10% domestic value addition (DVA) requirement for NEVs during the first four years, increasing to 15% in the fifth year.

It has also raised concerns over the proposed localization requirement for conventional vehicles, which would start at 20% in the first year and increase to only 40% by the fifth year.

According to PAAPAM, the local content level in conventional vehicles is already above 50%, and localization should instead be increased to around 70%.

The association said many components used in NEVs, including seats, tyres, glass, lights, bumpers, steel bodies, plastic components and wiring, can already be manufactured locally.

It argued that there was therefore no justification for allowing low-value assembly operations when established local parts-manufacturing facilities are already available.

PAAPAM has also objected to the proposed 1% sales tax incentive for Range Extended Electric Vehicles (REEVs) and Plug-in Hybrid Electric Vehicles (PHEVs).

The association argued that the proposed incentive could put local auto-parts manufacturers at a competitive disadvantage, as locally produced components are subject to an 18% sales tax.

PAAPAM claimed that if 50,000 NEVs are sold annually, the proposed tax incentive could result in a revenue loss of around Rs150 billion per year for the national exchequer.

The association has proposed retaining the 1% sales tax incentive for pure Battery Electric Vehicles (BEVs), while introducing a minimum DVA requirement of 30% in the first year, rising progressively to 60% by the fifth year.

For conventional vehicles, hybrids, PHEVs and REEVs, PAAPAM has proposed increasing localization to 60% by the fifth year.

PAAPAM has also expressed reservations over the proposed Mandatory Export Targets (METs), citing structural challenges faced by Pakistani auto-parts manufacturers in accessing international markets.

The association pointed to high electricity and utility costs, heavy taxation, expensive financing and the absence of Free Trade Agreements (FTAs) with several potential markets as major hurdles.

According to PAAPAM, these factors have resulted in an estimated 34% structural cost disadvantage for domestic manufacturers.

The association has urged the prime minister to hold an urgent meeting with its representatives and review the proposed policy to ensure that the transition towards electric mobility does not come at the expense of existing loca