Pakistan's Auto Policy 2026-31, Explained: Cheaper Cars on Paper — and Why It's Stuck in Limbo

In short: Pakistan's draft Auto Policy 2026-31 promises gradually lower import tariffs, 500,000 vehicles a year, around US$1 billion of exports, deeper localisation, a big electric-vehicle push and easier car loans by 2031. But as of June 2026 it is an unapproved draft, snagged on an IMF objection to a proposed 1% tax on electric vehicles (the IMF wants the standard 18%) and a tariff fight between the Commerce and Industries ministries. Every figure here is a proposal, not law.

Pakistan has written a lot of auto policies. Each one opens with the same promise — more cars, lower prices, real exports, an industry that finally stands on its own — and each one tends to end with the buyer still paying too much for a model the rest of the world retired years ago. The draft Auto Policy 2026-31 (its formal name is the Automobiles and Auto Parts Manufacturing Policy 2026-31, though most people call it the Auto Industry Development and Export Policy, or AIDEP) is the latest attempt, and on paper it is the most ambitious in years: cut the tariff wall, force localisation, bet hard on electric, make loans easier, and even let people import used cars commercially for the first time.

There is one problem. As of June 2026 it is not approved. The policy it is meant to replace expires on 30 June 2026, and the new draft is stuck — caught between an IMF that won't bless the tax breaks at its heart and two government ministries that can't agree how fast to lower the tariff wall. So before anything else, the honest framing: everything in this post is a draft proposal, not law. The numbers are real, in the sense that they are what the draft and the official briefings contain, but any of them can be diluted, delayed or dropped before it takes effect. With that firmly in mind, here is what the policy is actually trying to do — and why it's jammed.

What the Policy Is Trying to Do

The vision is a turn away from the old model — protect local assemblers behind very high import duties and hope localisation follows — toward a more competitive, export-facing industry where tariffs fall on a published schedule and manufacturers have to earn their margins by building more cars, more locally, and selling some abroad. The headline draft targets for 2031:

Draft targets as reported from the Auto Policy 2026-31 and official briefings, June 2026. "Local content" means domestic value addition. Some draft readings cite a higher export ambition (around US$3 billion); the US$1 billion figure is the most consistently reported. All targets are proposals subject to change before approval.

It helps to see why these targets read as a rebuke of the last decade. Pakistan builds cars at a fraction of the scale needed for deep localisation — annual output has hovered around 150,000–200,000 in recent years against neighbours that build in the millions — and that lack of scale is exactly why so many parts are still imported and prices stay high. The 2021-26 policy chased similar numbers and missed: car localisation stalled near half, exports stayed small and were mostly treated as "indicative", and prices rose 22–40% after 2022 as the rupee fell. The 2026-31 draft is, in effect, an admission that protection alone didn't work — and a bet that competition and a tariff deadline will.

The Tariff Wall, Coming Down — Slowly, and Not All the Way

The most consequential part of the draft is the tariff schedule, because import duties are the single biggest reason a car costs more here than almost anywhere. The plan, aligned with the National Tariff Policy that the cabinet approved separately, is to collapse customs duties into a simpler four-slab structure (0%, 5%, 10% and 15%) over five years, phase out the additional customs duty, and cut regulatory duties sharply — pulling the weighted-average tariff on vehicle imports down from about 10.6% toward roughly 7.4% by 2030, with the auto sector specifically targeted lower, nearer 6%.

For completely-built-up (CBU) imported cars specifically, the draft sketches cuts by engine size through 2030. As reported, the indicative glide path looks like this:

Indicative CBU duty cuts as reported from the draft Auto Policy 2026-31, June 2026. These are illustrative readings of a draft and may change after IMF vetting and the budget. The figures combine customs, additional customs and regulatory duties.

Notice two things. First, even after the cuts, these duties stay high — a big imported engine is still taxed at over 100%. This is not a plan to flood the market with cheap luxury imports; officials have been explicit that it is not. Second, the draft reportedly keeps a floor: completely-built-up duties "may not be reduced below 40% for any category". That floor is there to protect local assemblers, and it is also one of the policy's internal contradictions — because the broader National Tariff Policy points toward a 15% long-run ceiling. Reconciling a 40% auto floor with a 15% economy-wide cap is precisely the kind of fight that keeps a policy in committee, which brings us to the EV question and then to why the whole thing is stuck.

The EV Bet — and the 1% vs 18% Standoff

Electrification is the emotional core of the policy. The draft wants new-energy vehicles — battery-electric and qualifying plug-in hybrids — to reach around 30% of new sales by the end of the decade, backed by a national push for 3,000 charging stations by 2030 and subsidies for electric bikes and rickshaws. To get there, it proposes a deliberately generous tax gap: a 1% sales tax on new-energy vehicles for five years (against the standard 18%), a reduced rate of roughly 9% on hybrids, and cheap duties on EV-specific parts (around 1% for the first three years, then 5%).

This is where the policy collided with reality. The IMF declined to endorse those concessions. Its stated preference, as reported, is the standard 18% sales tax on all vehicles, with any consumer support delivered through direct subsidies rather than carved into the tax code. A 1% rate for five years is exactly the kind of tax expenditure the Fund has been pressing Pakistan to eliminate, and it sits inside the country's broader reform commitments — so it is not a detail the government can wave through alone.

There is a second, subtler fight buried here that the trade calls the cross-subsidisation problem. By taxing battery-electric and plug-in hybrids at 1% while leaving conventional self-charging hybrids at around 9% and combustion cars at 18%, the draft creates sharply different treatment for cars that, to a buyer, do similar jobs. Plug-in hybrids — which still have an engine — would get the full electric discount, positioning them to undercut conventional hybrids. Whether that is smart industrial policy or a distortion that picks winners is a genuine debate, and it is one more reason the powertrain tax tables were still being argued over rather than signed.

Used Imported Cars: The One Door That's Actually Opening

Here is the part of the story that is not stuck — and it matters, because it is the change most likely to touch ordinary buyers first. Quietly, ahead of the new policy, the government has already liberalised used-car imports through separate notifications that are in force now:

• Commercial used-car imports are legal. For the first time, registered companies can commercially import used vehicles (previously this was only possible through personal baggage, gift and transfer-of-residence schemes), subject to conditions on capital, after-sales support and safety inspection.
• A 40% regulatory duty applies — but it's tapering. Commercial used imports carry a 40% regulatory duty on top of normal duties and taxes. From 1 July 2026 it steps down by 10 percentage points a year — to 30% in 2026-27, then 20%, then 10% — reaching zero by around 2029-30.
• The age limit is lifting. Commercial imports were capped at vehicles up to five years old until 30 June 2026; after that the age restriction is removed, subject to safety, environmental and quality standards.
• The personal-baggage scheme is gone. The personal-baggage route — long the main channel for used imports — was abolished in January 2026. The gift and transfer-of-residence schemes survive but were tightened: vehicles up to three years old, sourced from the country where the overseas Pakistani actually resides, with a long waiting period between imports.

The reason this is contentious is obvious to anyone who has bought a car here: a stream of competitively priced used imports is the most direct threat the local assemblers have faced in years, and they have argued forcefully against it — warning that even with a 40% duty it could flood the market and undercut local manufacturing. That tension, between cheaper choice for buyers and protection for the domestic industry, is the same one running through the entire policy.

Why It's Stuck in Limbo

Pull the threads together and the delay isn't mysterious — it's the predictable result of three forces pulling against each other:

• The IMF won't bless the tax breaks. The 1% new-energy-vehicle rate and the ~9% hybrid rate are exactly the kind of reduced rates the Fund wants gone; it prefers 18% across the board with targeted subsidies. Because the policy forms part of Pakistan's reform commitments, it has to be vetted by the IMF before it can go to cabinet — so an unresolved objection freezes the whole document.
• Two ministries disagree on the tariff wall. The Commerce Ministry pushes deeper liberalisation in line with the National Tariff Policy (a far lower long-run ceiling); the Industries Ministry wants to keep higher protective duties — and that 40% built-up-import floor. On the biggest engines, the gap between the Commerce side's deeper cut (the top duty falling toward roughly 74%) and the Industries side's shallower one (nearer the ~115% in the table above) is, in plain terms, the argument that's eating the calendar.
• The industry feels side-lined. Parts makers and assemblers have complained that the draft was being pushed forward without enough consultation, even as a new Motor Vehicle Development Act moves through parliament to give the engineering regulator statutory teeth — including mandatory international safety standards from mid-2026. A policy that reshapes an industry tends to stall when the industry says it wasn't properly in the room.

The deadline pressure is real: the old policy lapses on 30 June 2026, and an industry can't sit in a vacuum between frameworks for long. But as of late June 2026, internal meetings were described as inconclusive, the tax proposals had only just gone to the IMF, and no approved final draft existed. The likeliest outcome is some version passes — diluted, delayed, or stitched into the budget and tariff instruments rather than landing as one clean document. Which is, not coincidentally, roughly what happened to the last policy too.

What It Realistically Means for a Car Buyer

If you are waiting for this policy to make your next car dramatically cheaper, temper the timeline. Three honest expectations:

• No overnight price cut. Tariff relief in Pakistan's car market has a long history of being absorbed by rupee depreciation, dealer "own money" premiums and margins before it ever reaches the buyer. Lower duties are a necessary condition for lower prices, not a sufficient one.
• The competition matters more than the headline rate. The thing most likely to actually push prices down is the arrival of credible alternatives — used imports and new entrants — forcing incumbents to compete. That is a 2027-and-beyond story, and only if the liberalisation survives contact with the assembler lobby.
• Electric is the clearest signal. Whatever the final EV tax rate, the policy direction — subsidies, charging targets, a doubled fuel levy in the budget making petrol more expensive to run — all point the same way. For the long haul, the policy signals are consistently pro-electric — a direction of government intent worth noting, whatever you ultimately choose.

And the meta-lesson, the one worth keeping whatever the final text says: in Pakistan, a policy is a statement of intent, not a guarantee. The 2021-26 plan promised a lot and delivered a fraction. Read the 2026-31 targets the same way — as a direction of travel to watch, not a set of numbers to bank on. When the final, approved policy lands, the figures that survive will be the ones that matter; until then, treat all of this as the shape of the argument, not the outcome.

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