Pakistan’s proposed automotive policy seeks lower taxes on electric and hybrid vehicles, mandatory export targets, higher localisation and gradual tariff reductions to boost competitiveness.
KARACHI, October 21, 2026: The committee reviewing Pakistan’s Automotive and Auto Parts Manufacturing Policy 2026–31 has proposed wide-ranging reforms to accelerate new energy vehicle (NEV) adoption, increase exports, strengthen local manufacturing and promote competition.
The proposals include preferential sales tax rates for electric and hybrid vehicles, an Automotive Development Levy (ADL), export incentives, higher localisation requirements and gradual reductions in import tariffs.
Preferential taxation for NEVs
The committee has proposed extending the 1% sales tax rate on battery electric vehicles (BEVs) until FY2031. Plug-in hybrid electric vehicles (PHEVs) would attract a proposed 9% rate, while range-extended electric vehicles (REEVs) would be taxed at 6%.
The proposals cover locally assembled and imported vehicles. The committee has also recommended increasing the green financing limit for NEVs from Rs3 million to Rs10 million and extending the maximum loan tenor from three to five years.
Existing EV and PHEV manufacturers, including SAZEW, NPL, NCPL and HUBC, could benefit. The estimates suggest SAZEW’s earnings could increase by 7% in FY2027 and 10% in FY2028 if the proposed tax reduction is implemented.
NPL’s earnings per share (EPS) could rise by 2.6% in FY2027 and 2% in FY2028, while NCPL’s EPS could increase by 2.8% and 2.3%, respectively.
Automotive Development Levy proposed
The committee has proposed an ADL on selected internal combustion engine (ICE) vehicles to finance incentives. Vehicles with engine capacities of up to 1,000cc would be exempt, while those between 1,001cc and 2,000cc would face a 2% levy. Vehicles above 2,000cc would attract a 10% levy.
The additional cost could weigh on demand for higher-capacity vehicles, potentially affecting Indus Motor Company (INDU) and Honda Atlas Cars (HCAR), which have comparatively limited NEV offerings.
$6 billion export target
The draft policy sets an automotive sector export target of $6 billion for FY2027–31, supported by mandatory export targets for original equipment manufacturers (OEMs).
Proposed incentives include a baseline rebate of 10% of net free-on-board (FOB) export value, with an additional 5% bonus for manufacturers achieving export growth of at least 5% over the previous year.
Higher localisation requirements
New ICE vehicle manufacturers would have to increase domestic value addition from 20% in FY2027 to 40% by FY2031. For new NEV manufacturers, the requirement would rise from 10% to 25%.
Existing OEMs would be required to increase localisation by 2% annually. The proposed requirements could favour INDU and HCAR, whose localisation levels are estimated at approximately 60% and 55%, respectively.
Gradual tariff rationalisation
The committee has proposed reducing tariffs on completely built-up (CBU) vehicles and completely knocked-down (CKD) kits, with duties on several categories declining to 15% by FY2031. Customs duty on non-localised CKD kits in several categories could fall to 5%.
Lower CKD duties could reduce assembly costs, while cheaper imported vehicles resulting from lower CBU tariffs could intensify competition for domestic manufacturers.
The proposals remain subject to government approval and finalisation of the policy.