Islamabad, November 2025 — Pakistan’s automotive sector stands at a turning point as the current auto policy expires in June 2026. The government has begun drafting the Auto Industry Policy 2026-31, a blueprint that could redefine how cars are assembled, imported, and priced in the coming decade.
The proposed framework emphasizes tariff reforms, market-driven competition, and gradual import liberalization — but it also exposes deep divisions among local assemblers, vendors, and policymakers.
Tariff Reforms at the Core
Under the upcoming policy, Pakistan plans a five-year tariff overhaul aimed at attracting investment while easing consumer prices.
New Customs Duty Structure (2026-31)
| Duty Slab | Category | Rate |
|---|---|---|
| 0 % | Specific essential imports | 0 % |
| 5 % | Locally sourced parts | 5 % |
| 10 % | Finished vehicles (CKD/CBU) | 10 % |
| 15 % | Premium and luxury vehicles | 15 % |
Key changes include:
- Capping finished-vehicle duty at 15 % over five years.
- Phasing out Additional Customs Duty (ACD) and Regulatory Duty (RD) to simplify import procedures.
- Introducing a 40 % surcharge on used-car imports in FY 2026, gradually dropping to parity by 2030.
According to the Federal Board of Revenue, these reforms should reduce import-stage bottlenecks and improve transparency in valuation.
(Source: Government of Pakistan, Ministry of Industries & Production)
Used Vehicle Imports and Market Impact
Imports for Overseas Pakistanis are expected to expand, giving middle-class buyers more affordable options.
Yet, the move has rattled local assemblers who fear increased competition and thinner margins.
FY 2023 figures:
- Imported vehicles worth ≈ PKR 345 billion
- Vehicle exports only ≈ PKR 21 billion
Such imbalance underlines why policymakers aim to both open imports and strengthen local value-addition simultaneously.
The Problem with Rapid Liberalization
If tariffs fall too quickly without parallel capacity-building, Pakistan could face:
- Plant closures in the vendor network
- Layoffs across the 300 000+ workforce
- Increased dependence on imports rather than local production
PAAPAM’s Warning
The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) estimates potential vendor losses of PKR 48–60 billion annually if protection declines abruptly.
They argue that low-interest loans, technology upgrades, and export incentives must accompany any tariff cuts to prevent a collapse of the domestic parts ecosystem.
Assemblers vs Parts Manufacturers — The Industry Divide
A widening policy rift has emerged between assemblers seeking competitiveness and vendors defending local jobs.
| Group | Goal | Expected Outcome |
|---|---|---|
| Assemblers | Reduce duties on CKD kits to 10 % | Lower costs and retail prices |
| Parts Manufacturers | Maintain 35 % protection | Safeguard employment and local suppliers |
| Consumers | Seek affordable and reliable options | Greater choice but possible quality variation |
Assemblers argue that cheaper inputs will expand production volumes and boost exports, while vendors warn of de-industrialization if protections disappear overnight.
Balancing Protectionism and Competitiveness
Pakistan’s auto sector has long relied on high import duties to nurture local assembly, but this protectionism has also limited innovation and affordability.
To strike balance, policymakers are considering:
- Gradual duty reduction over 10–15 years instead of immediate cuts.
- Performance-based incentives for vendors meeting quality standards.
- Export rebates for companies supplying parts to foreign markets.
- Localization targets aiming for 80–90 % local content in small cars by 2031.
This transition could attract foreign OEM partnerships while retaining core local employment.
Global Examples and Lessons
India achieved global leadership in compact-car manufacturing by incentivizing vendors and introducing phased tariff reduction only after local readiness.
Mexico leveraged NAFTA to become the fourth-largest auto exporter worldwide, integrating local suppliers into regional chains.
Thailand’s “Detroit of Asia” model shows the power of consistent policy, offering localization bonuses and long-term investor confidence.
For Pakistan, the takeaway is clear: gradual liberalization paired with industrial support works better than overnight duty cuts.
The Consumer Angle
From a buyer’s perspective, the new policy could mean:
- Lower car prices as duties ease.
- Broader vehicle variety due to freer imports.
- Improved EV availability if customs relief applies to green tech.
However, affordability gains may depend on the rupee’s stability and bank financing rates. Without financial reform, cheaper imports may not immediately translate into accessible retail pricing.
Looking Ahead — 2026 and Beyond
The Auto Industry Policy 2026-31 will be the foundation for Pakistan’s next growth cycle in mobility, aiming to shift the industry from protectionist to competitive.
Key priorities to watch:
- Tariff phasing schedule and duty slabs for EVs and hybrids.
- Vendor support funds and R&D grants.
- Import monitoring systems to avoid undervaluation.
- Stable policy tenure to reassure investors.
If executed prudently, Pakistan can integrate into global supply chains rather than remain a closed-market assembler.
Reliable Mobility Solutions Amid Transition
As the industry modernizes, businesses and travelers still need dependable transportation.
For corporate travel, airport transfers, or inter-city commuting, Al Farooq Rent A Car offers professional, driver-included services across Islamabad, Rawalpindi, Lahore, Faisalabad, and Karachi.
Its fleet of sedans, SUVs, and executive cars supports individuals and enterprises that prefer reliability and comfort while Pakistan’s mobility landscape evolves.
Conclusion
The coming five-year policy will define whether Pakistan’s auto sector transforms into a globally competitive industry or remains trapped in a protectionist cycle.
If the government balances tariff reform with capacity building, both consumers and manufacturers could benefit — paving the way for affordable cars, technological innovation, and sustainable growth.
FAQs
Q1. When will the new Auto Industry Policy be implemented?
It will take effect after June 2026 once the current policy expires and the cabinet approves the final draft.
Q2. What tariff changes are expected in the new policy?
Customs duties will follow a four-slab system (0 %, 5 %, 10 %, 15 %) with reduced surcharges on used vehicles.
Q3. How will the policy affect car prices in Pakistan?
Gradual duty reductions could lower prices over time, though currency stability and financing costs remain key factors.
Q4. What risks does the auto industry face under liberalization?
Local parts manufacturers may lose protection and jobs if tariffs drop without capacity-building support.
Q5. Where can I rent a car with driver for business travel in Islamabad?
Book through Al Farooq Rent A Car Islamabad for reliable corporate and inter-city travel solutions.
