Business Recorder
The Auto Policy 2026-31 is yet to be finalized, and every stakeholder is lobbying hard. Local assemblers want to preserve protection. Parts manufacturers are pushing for safeguards that support localization. Importers want lower barriers for completely built-up (CBU) vehicles. Unsurprisingly, everyone is arguing from their own commercial interests. There are even voices within the industry advocating a one-year delay in the policy. The argument is not entirely without merit. After years of contraction, the sector is finally recovering. Production is rising, investment is returning, and competition is delivering better products to consumers. There is a case for not disrupting a market that is beginning to function again. The government’s challenge is more complicated. It must reduce tariffs in line with commitments under the National Tariff Policy and its broader reform agenda while simultaneously protecting revenue collection. The likely solution appears to be a reduction in customs duties and para-tariffs accompanied by new taxes and levies elsewhere in the system. The debate is therefore no longer about whether duties will come down. It is about what will replace them. Current proposals suggest customs duties on CKD kits could fall by around five percentage points. Duties on localized parts may decline from 46 percent to 41 percent, while those on non-localized parts could fall from 32 percent to 27 percent. On paper, that should lower production costs and eventually vehicle prices. In practice, however, the benefit may be neutralized through the introduction of a new environmental levy on internal combustion engine (ICE) vehicles, reportedly ranging between 5 and 15 percent, in addition to the proposed carbon levy.The result is that despite lower duties, most ICE vehicles are likely to become more expensive. The treatment of New Energy Vehicles (NEVs) is even more important. While environmental levies are not expected to apply to EVs, duties on locally assembled EV components are proposed to rise sharply. Duties on localized EV parts may increase from 25 percent to 41 percent, while non-localized components could rise from 10 percent to 25 percent. With only a handful of EV models currently being assembled locally, these changes could raise prices by 10 to 15 percent and slow the development of a domestic EV manufacturing ecosystem before it has properly taken root. Another battle is unfolding within the NEV category itself. Plug-in Hybrid Electric Vehicles (PHEVs) are caught between competing interests. Today, PHEVs enjoy a preferential GST regime of 8.5 to 12.5 percent. One proposal seeks to reduce this to 1 percent, bringing it closer to battery-electric and range-extended electric vehicles. That would be a sensible step if the objective is to accelerate adoption of cleaner technologies. Others with greater exposure to conventional ICE vehicles and hybrids are reportedly pushing in the opposite direction. If GST on NEVs rises to 18 percent while duties on EV components also increase, the impact on prices could be substantial. Battery-electric and range-extended vehicles could become more than 30 percent more expensive, while PHEVs may face double-digit price increases. Under such a framework, the government’s target of achieving a 30 percent NEV share by 2030 would become increasingly difficult to achieve. The situation is further complicated by the expiry of concessions on imported EVs. This is particularly problematic for companies that have committed to local assembly but whose plants are still months away from production. Penalizing them before localization begins risks slowing investment rather than encouraging it. The broader concern is that virtually every proposed adjustment points toward higher vehicle prices. The only meaningful exception may be small cars below 800cc, where GST could be reduced to 12.5 percent without additional levies. Beyond that category, the direction of travel is clear: higher taxes and higher prices. That outcome sits uneasily with another government objective—raising annual vehicle sales to 500,000 units by 2031. Higher taxes can increase revenues in the short term, but they also suppress demand and limit scale. The two objectives cannot be pursued independently. There is also a deeper issue of mindset. Policymakers often treat automobiles as luxury goods that should be discouraged. The country’s annual vehicle import bill remains smaller than its edible oil import bill. One supports industrialization, engineering capabilities, vendor development, and employment. The other reflects a consumption necessity. If Pakistan is serious about building a manufacturing base, it cannot continue to view the automobile sector primarily through the lens of luxury consumption. The government should support both localization and electrification. Reducing the gap between CBUs and locally assembled vehicles is acceptable if it pushes assemblers to become more efficient. Indeed, duties on imported vehicles are already set to fall significantly. But raising taxes on locally assembled NEVs at the same time would undermine one of the few segments where localization is only just beginning. Ultimately, the debate should not be about protecting one lobby or another. The real objective is straight forward: encourage local manufacturing, accelerate the adoption of battery-powered vehicles, and keep vehicles affordable enough for the market to grow. Everything else is secondary. The country saves foreign exchange through lower fuel imports, consumers benefit from lower running costs, the power sector gains additional demand, and emissions decline. That is a rare alignment of economic, industrial, and environmental interests. Policymakers should not allow competing lobbies to obscure it.
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