Car prices set to fall as govt unveils sweeping reforms

The federal government has unveiled a new automobile policy aimed at reducing vehicle prices, promoting electric vehicles (EVs), strengthening local manufacturing and increasing exports over the next five years.

Information Minister Attaullah Tarar and Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan announced the policy at a press conference in Islamabad on Saturday. The policy will now proceed through the cabinet approval process.

Haroon Akhtar said the framework was developed after extensive consultations and was based on six key priorities: affordable vehicles, export growth, localisation, vehicle safety, electric mobility and transparency.

He said the government expected vehicle prices to decline gradually as import duties on completely built-up vehicles, assembly plants and automotive components would be reduced annually over the next five years. The proposed changes are intended to lower manufacturing costs and make locally produced vehicles more affordable, particularly for middle-income and lower-middle-income households.

However, luxury vehicles will not receive the same price relief. The adviser said the prime minister had specifically directed the relevant authorities to ensure that ordinary consumers benefited from lower production costs.

The policy also sets an ambitious target of achieving $6 billion in cumulative automotive exports over five years. Akhtar said Pakistan’s automobile exports remained limited, with overseas shipments largely consisting of vehicle components rather than fully manufactured vehicles.

To encourage exports, the government plans to introduce a reward-and-penalty mechanism. Manufacturers meeting their export targets will receive a five per cent Duty Drawback on Local Taxes and Levies (DLTL), along with an additional 10 per cent incentive for annual growth in incremental exports.

Companies failing to meet their export and domestic manufacturing targets will face penalties and lose eligibility for export rebates. The government also intends to make localisation targets compulsory for manufacturers to expand domestic production and create employment opportunities.

Akhtar said the government wanted to move beyond an assembly-based automotive industry that depended heavily on imported vehicles and completely knocked-down kits. He added that Pakistan currently had 16 car and SUV manufacturers and around 100 two-wheeler manufacturers.

The new framework also seeks to address additional payments, commonly known as on-money, charged during vehicle bookings. Under the proposed rules, manufacturers will not be allowed to demand advance payments exceeding 20 per cent of a vehicle’s price at the time of booking.

Vehicle safety is another major component of the policy. The government plans to introduce 45 additional safety standards aligned with the United Nations’ WP.29 regulations. These standards will cover locally manufactured and imported vehicles, with particular attention to concerns involving defective brakes, tyre failures and other safety-related issues.

The government has also announced several incentives to accelerate the transition towards electric mobility. It aims to increase the share of electric vehicles to 30 per cent of all new vehicle sales by 2030, although Akhtar suggested the target could be achieved earlier.

Under the proposed tax structure, fully electric vehicles will face a one per cent sales tax, while range-extended electric vehicles will be taxed at six per cent and hybrid electric vehicles at nine per cent. These concessions will remain subject to approval from the International Monetary Fund (IMF).

Electric vehicles priced up to $50,000 will also be exempt from capital value tax, withholding tax and federal excise duty. Vehicles exceeding this price threshold will be treated as luxury items and taxed under the applicable rules.

The government also plans to expand the State Bank of Pakistan’s vehicle financing facility for electric cars. The existing financing limit of Rs3 million will be increased to Rs10 million for EV purchases, while the repayment period will be extended from three to five years.

To support the expansion of charging infrastructure, the government will provide financial assistance to bridge the gap between the cost of establishing charging stations and their commercial viability. Sales tax on charging equipment will be reduced to one per cent, while customs duty will be abolished.

Akhtar said the government intended to finance these incentives through an Automotive Development Levy imposed on internal combustion engine vehicles with engine capacities above 1,000cc. Owners of ordinary petrol vehicles below this threshold will remain exempt from the proposed levy.

He said the revenue generated would also support export incentives and research and development activities.

The adviser further highlighted growth in electric two-wheeler sales following the launch of the New Energy Vehicle Policy 2025-30. According to the figures shared at the press conference, electric two-wheeler sales increased to 240,000 in FY2025-26 from 60,000 in FY2024-25.

Addressing the press conference, Attaullah Tarar said previous protectionist policies had failed to encourage innovation and value addition in Pakistan’s automobile sector despite providing considerable protection to local manufacturers through higher import duties.

He described the growing use of electric motorcycles and scooters as an important development, particularly as Pakistan continued to face pressure from rising international oil prices.

The minister said greater adoption of electric vehicles would help reduce carbon emissions, lower the country’s oil import bill and ease pressure on the current account.

He also clarified that the new policy would not introduce changes for ordinary petrol-powered vehicles with engine capacities below 1,000cc, keeping the interests of common consumers in consideration.

Commenting on the issue of non-custom-paid vehicles in Khyber Pakhtunkhwa, Tarar said a transparent administrative mechanism was being developed to ensure that all vehicles were registered through the Customs and Excise departments.

In a separate statement, the minister said the policy had been prepared after consultations with relevant stakeholders, technical assessments and a review of international automotive models.

He said the government wanted to transform the local automobile industry through innovation, localisation and value addition while creating jobs and developing the capacity to export vehicles.