Government introduces binding localisation requirements, Rs2.1 billion vendor upgrade programme and incentives for exporters to transform the automotive industry into an export-oriented manufacturing hub.
ISLAMABAD: Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan has said that Pakistan’s Autos and Auto Parts Manufacturing Policy 2026–2031 marks a major shift towards export-oriented manufacturing, greater localisation and internationally competitive domestic production.
He said the policy aims to reduce dependence on imported vehicles and components while strengthening local manufacturers, expanding auto parts production, generating employment and integrating Pakistani companies into global automotive supply chains.
According to a news release, the policy reflects Prime Minister Shehbaz Sharif’s vision of building an export-led, self-reliant and competitive economy.
Pakistan introduces binding localisation requirements
Haroon Akhtar said the new policy introduces binding localisation requirements to ensure that growth in the automotive market translates into greater domestic value addition, industrial investment, employment and technological development.
Manufacturers failing to meet applicable minimum domestic value addition requirements will face an additional three percentage points of customs duty on relevant non-localised completely knocked down (CKD) imports in the subsequent financial year, subject to the prescribed legal process.
Highlighting the importance of the domestic vendor industry, he said Pakistan has approximately 2,200 auto parts manufacturers.
To strengthen their capabilities, the government will introduce a Vendor Upgradation and Technology Transfer Programme (VUTTP), with an allocation of Rs2.1 billion, through the Engineering Development Board (EDB) and Small and Medium Enterprises Development Authority (SMEDA).
The programme will support technological improvements, access to common manufacturing facilities, skills development, international quality certification and export readiness.
The policy also targets investment in at least five anchor auto parts manufacturing companies to develop domestic manufacturing clusters.
Pakistan targets $6 billion in automotive exports
Export promotion is a major component of the five-year policy, which sets cumulative export targets of approximately $6 billion during 2026–2031.
The targets include:
• Auto parts manufacturers: $3.29 billion, representing 55 per cent of total exports.
• Automobile manufacturers: $2.72 billion, representing 45 per cent.
To encourage exports, the government will introduce a Drawback of Local Taxes and Levies (DLTL) scheme, offering eligible exporters support equivalent to 5 per cent of net Free on Board (FOB) export value, alongside an additional 10 per cent incentive on qualifying incremental exports.
Manufacturers will also be required to secure export opportunities within the global supply chains of their international principals.
The adviser said these measures would encourage companies to move beyond reliance on domestic consumers and establish sustainable international markets.
Electric vehicle manufacturing receives incentives
The policy envisages progressive customs duty rationalisation over five years, linking import concessions with domestic manufacturing, localisation and export performance.
Under the framework, a concessional 5 per cent customs duty will be available on imported battery electric vehicles (BEVs) valued up to $15,000 during the initial two years, subject to conditions requiring companies to establish domestic assembly or manufacturing facilities.
Eligible companies must submit a surety bond and an irrevocable bank guarantee covering the customs duty differential. They must also commence commercial production of the imported BEV variant by September 30, 2028.
Policy targets $17.7 billion in foreign exchange savings
Haroon Akhtar said the policy is expected to generate cumulative foreign exchange savings of approximately $17.7 billion during 2026–2031 compared with the foreign exchange required to import equivalent vehicles in completely built-up (CBU) condition.
He added that increased domestic production, localisation and export growth would help reduce pressure on Pakistan’s external account.
The policy also projects that greater adoption of new energy vehicles will help avoid imports of approximately 1.823 million tonnes of oil during the implementation period, supporting energy security and reducing petroleum import dependence.
Contract manufacturing to utilise idle capacity
The adviser said the government would also promote contract manufacturing to utilise existing industrial capacity, which currently has estimated idle capacity ranging from 41 to 80 per cent.
Better utilisation of existing facilities is expected to improve production efficiency, attract investment, create employment and strengthen Pakistan’s automotive industrial ecosystem.
Concluding his remarks, Haroon Akhtar said the policy was fundamentally a manufacturing-led and export-oriented framework aimed at strengthening domestic industry rather than perpetuating dependence on imported vehicles and components.
He reiterated that the government would focus on empowering local manufacturers, promoting technological advancement, developing domestic vendors and attracting investment to position Pakistan as a competitive participant in global automotive supply chains.
The ultimate objective, he said, was to transform the automotive sector into a major contributor to export-led economic growth, foreign exchange generation, industrial development and sustainable employment.