• PM Shehbaz approves draft after securing IMF’s nod
• Development levy on conventional vehicles to finance EV, export incentives
• Vehicles up to 1,000cc exempt from the proposed levy
• Manufacturers barred from demanding more than 20pc of vehicle price as advance payment
ISLAMABAD: After securing the IMF’s nod, Prime Minister Shehbaz Sharif on Saturday approved the draft Auto Policy 2026-31, which envisages a levy on conventional vehicles to finance electric vehicles (EVs) and export incentives, and sets a $6 billion export target over five years.
Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan, along with Information Minister Attaullah Tarar, announced at a news conference that the prime minister had approved the final draft of the Automotive Industry Policy.
The PM’s adviser said the government intended to finance the proposed incentives for EVs and export incentives for the auto sector through an Automotive Development Levy (ADL) on vehicles powered by internal combustion engines (ICE). “But these are revenue-neutral and the IMF has acknowledged that the export incentives and sales tax reliefs will be supported through the ADL.”
Mr Khan said that vehicles with engine capacities of 1,000cc or below would be exempt from the ADL.
The Ministry of Industries and Production had submitted the draft auto policy to the IMF team on Thursday, and it was approved on Saturday. The policy will now be submitted to the federal cabinet for consideration and approval.
Mr Khan said finalisation of the draft auto policy marked an important step towards addressing structural challenges in Pakistan’s automotive sector and establishing a competitive, export-oriented and locally integrated automobile industry.
He stressed that there was no monopoly in the automobile market, pointing out that Pakistan currently had 16 car and SUV manufacturers and 100 two-wheeler manufacturers.
The adviser said the new policy would also address the issue of additional charges, commonly known as ‘on-money’, in vehicle bookings. It makes it mandatory for manufacturers not to demand more than 20 per cent of a vehicle’s price as advance payment at the time of booking. The measure aims to protect consumers from excessive advance demands and promote greater transparency in the automotive market.
Under the proposed framework, manufacturers would receive a 5pc drawback of local taxes and levies (DLTL), along with an additional 10pc incentive on incremental annual export growth. However, companies would have to meet prescribed export and localisation targets to qualify for the incentives, while failure to achieve them could attract penalties.
The policy sets a cumulative export target of $6bn over five years. Mr Khan said Pakistan’s auto exports remained limited, with most overseas shipments comprising parts rather than vehicles manufactured by local assemblers. He said Pakistan had formulated policies over the past decade but had failed to achieve the desired growth in exports.
He emphasised that the government was now pursuing a focused approach to address structural weaknesses in the automotive sector and translate policy commitments into tangible economic outcomes.
“Localisation was among the foremost priorities of Prime Minister Shehbaz Sharif, as it directly contributed to job creation, industrial development and economic self-reliance,” Mr Khan added.
He stressed that the government did not want Pakistan’s automotive industry to remain dependent on imports of completely built units (CBUs) or merely assemble completely knocked-down (CKD) kits without developing a strong domestic manufacturing base.
“We want to encourage manufacturers to increase local content, develop domestic vendor industries and strengthen the country’s industrial ecosystem, thereby generating employment and retaining greater economic value within Pakistan,” he said.
Vehicle safety
Highlighting vehicle safety, Mr Khan said the absence of adequate safety standards, particularly in imported used vehicles, had been a serious concern. He referred to recurring road accidents caused by issues such as defective brakes, tyre failures and inadequate safety features, including non-functional seat belts.
He said ensuring the safety of consumers and passengers was an important consideration in the government’s policy framework. The adviser identified the promotion of EVs as another major priority, particularly in view of Pakistan’s vulnerability to fluctuations in international oil prices.
He explained that rising oil prices increased the country’s import bill, put pressure on the current account and contributed to inflationary pressures. The government was therefore placing particular emphasis on EV adoption to reduce dependence on imported petroleum products and mitigate external economic vulnerabilities.
He recalled that the prime minister had already launched the National Electric Vehicle Policy last year, adding that its implementation results would also be shared.
Mr Khan also highlighted the role of the National Tariff Policy in reducing production costs by making imported raw materials and intermediate goods more affordable.
He said lower input costs would enable domestic manufacturers to produce finished goods at competitive prices, benefiting consumers in the local market while improving Pakistan’s competitiveness in international markets.
Attaullah Tarar said the new policy would increase competition. He also lauded the widespread use of two-wheelers by girls and women, describing it as an important step towards women’s empowerment in the country.
Responding to a question about the widespread availability of non-custom-paid vehicles in Khyber Pakhtunkhwa, he said the province now had a transparent set-up to deal with the issue.
He said a formal policy was being framed to ensure that no vehicle remained unregistered and all vehicles were registered through the customs and excise departments. He said such vehicles had been used in terrorist activities in the past, adding that this and other issues in the province were being addressed.
Published in Dawn, November 8th, 2026
