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ISLAMABAD – As of April 5, 2025, Pakistan’s long-awaited automotive policy is finally taking shape, with key government factions nearing a consensus after years of back-and-forth. The Auto Industry Development and Export Policy (AIDEP) 2026-31 aims to thread the needle between protecting local assemblers and gradually prying open the market to foreign competition. The framework still requires sign-off from the Prime Minister and the International Monetary Fund, but sources close to the discussions say a final version could be unveiled within weeks.
The draft policy reflects a fundamental tension: the Ministry of Industries and Production (MoI&P) wants to keep shielding domestic manufacturers and push for deeper localization, while the Ministry of Commerce is pressing for lower tariffs on completely built-up units (CBUs) to align with the National Tariff Policy (NTP) 2025-30. According to a recent analysis from JS Global, the final outcome is likely to be a middle path—a gradual reduction in CBU duties, paired with lower tariffs on completely knocked-down (CKD) kits to help local assemblers stay competitive. The report warns that this transition will “constrain pricing power for manufacturers over the medium term as competition intensifies.”
Gradual Tariff Liberalization Takes Shape
The NTP sets a clear target: a maximum customs duty of 15% on imported CBUs by 2030. That’s a dramatic shift from today’s rates, which can hit 155% for larger vehicles. The MoI&P has proposed a more gradual glide path, with tariffs between 40% and 75% depending on engine capacity by the end of the decade. Insiders suggest the final policy will adopt something closer to the industry ministry’s timeline, but with annual reviews to keep the process on track.
To protect the domestic industry, the government is also tightening rules on used-car imports. Programs like Transfer of Residence and Gift imports now face stricter safety and emissions standards, along with a new 850-day import interval. The impact is already visible: used-car imports fell 15% year-on-year in the third quarter of fiscal 2026, signaling that the policy is having its intended effect.
Hybrid Tax Changes and EV Incentives Remain Central
A major sticking point has been the sales tax on hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs). Concessionary rates expired on June 30, 2026, pushing these vehicles back into the 25% sales tax bracket. While the government is not expected to reinstate the old rates, recent proposals suggest a new reduced rate of 18% could be adopted. This would provide some relief to consumers and automakers alike.
Incentives for new energy vehicles (NEVs) are expected to remain a top priority. The government has extended customs duty concessions on EV-specific parts for one year and kept a concessional sales tax rate of 1% for locally manufactured EVs. Pakistan maintains its long-term target of having EVs account for 30% of new vehicle sales by 2030, a goal that requires sustained policy support.
US Auto Trade Implications
For American automakers and exporters, the gradual liberalization of Pakistan’s auto market presents both opportunities and hurdles. Currently, US-made CBUs face prohibitive tariffs, limiting their market presence. As duties come down, brands like Ford, Chevrolet, and Jeep could see a more accessible entry point, especially for larger SUVs and pickup trucks that are popular in Pakistan. However, the phased approach means that meaningful tariff reductions will not materialize until the late 2020s.
“The direction is positive, but the pace is cautious,” said a trade expert with the US-Pakistan Business Council, speaking on condition of anonymity. “US exporters should monitor the annual reviews closely and engage with Pakistani authorities to ensure that the tariff reductions are implemented as promised. The EV incentives also create a niche for American electric vehicle technology, though infrastructure gaps remain.”
Outlook for the Auto Sector
While the new policy is expected to provide near-term relief to local assemblers through CKD tariff adjustments, the long-term trajectory is unequivocally toward greater competition. JS Global’s report sums it up: “Gradual tariff liberalisation and rising competition should continue to constrain pricing power over the medium term, particularly with new entrants expanding.”
For Pakistan’s consumers, the policy promises a wider selection of vehicles at potentially lower prices, but the transition will be gradual. For the domestic industry, the pressure is on to improve efficiency and localization to survive the coming wave of import competition. The IMF’s final approval will be a key milestone, as the policy is tied to Pakistan’s broader economic reform program. With consensus among government stakeholders now within reach, the auto sector is bracing for a new era—one that balances protection with the inevitable pull of liberalization.
