Pakistan auto policy 2026-31 is targeting nearly $25 billion in savings and economic benefits over the next five years, making it one of the most ambitious plans the country has put forward for its car industry. Prime Minister Shehbaz Sharif has approved the draft, which now heads to the Economic Coordination Committee (ECC), the federal cabinet, and the International Monetary Fund (IMF) for further review.
The numbers are big. The policy estimates that local manufacturing will help save $17.7 billion in the next five years, while adopting electric vehicles (EVs) will further save $6.9 billion. Together, that adds up to roughly $25 billion in projected savings for the country, mostly by cutting down on expensive vehicle imports.
What the Pakistan Auto Policy 2026-31 Covers
Prime Minister Shehbaz Sharif has approved Pakistan’s Auto Policy 2026-31, which aims to expand vehicle and auto-parts exports, encourage electric vehicle adoption and strengthen domestic manufacturing through tariff reforms and export-linked incentives.
The proposed policy sets an ambitious target of increasing vehicle exports to $6 billion, and auto-parts exports to $1.2 billion by the fiscal year 2030-31. To put that in context, Pakistan’s auto sector currently exports only around $190 million to $200 million a year, according to the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM). So the government is targeting a roughly 30-fold jump in vehicle exports within five years.
The auto sector already accounts for 7% of Pakistan’s GDP and employs a workforce of over 6.8 million people as of 2024, so the stakes for getting this policy right are very high.
EV Tax Rates and Financing Limits
One of the biggest wins in the draft is the government’s stance on EV taxes. The government has rejected the IMF’s proposal to raise the sales tax on electric vehicles to 18 per cent. Instead, it has chosen a much friendlier tax structure for clean vehicles.
Under the proposed framework for 2026-31, battery electric vehicles would face a 1% sales tax, range-extended electric vehicles 6%, and plug-in hybrid vehicles 9%. The policy also proposes a 10% federal excise duty on electric vehicles valued at more than $75,000, so luxury EVs will still pay more.
For everyday buyers, the financing changes matter the most. To encourage consumers to switch to electric vehicles, the government has approved proposals to raise the financing limit from Rs3 million to Rs10 million and extend the repayment period from three to five years. This makes monthly payments smaller and puts an EV within reach for more middle-income families.
The policy further envisages lower import tariffs for electric vehicles, including a reduced-tariff category for smaller models priced below $15,000. If you want to know more about that lower duty window, check out our earlier piece on how Pakistan already cut EV import duty to 5% for cars under $15,000.
Penalties for Manufacturers Who Miss Targets
This is the part most coverage has missed. The new Pakistan auto policy is not just carrots, it has real teeth too. The policy proposes mandatory export targets for automobile manufacturers, with incentives for companies that increase overseas sales and penalties for those that fail to meet their commitments.
Companies exceeding the targets would be eligible for incentives equivalent to 5% of export value, with an additional 10% incentive proposed for exports above the previous year’s level. But miss the mark and the consequences are serious. Companies failing to meet their export targets would face penalties, including the potential revocation of manufacturing certificates if export targets are unmet for two consecutive years. Losing a manufacturing certificate would effectively shut a company out of the Pakistani market, so the pressure to perform is real.
Similarly, companies that fail to meet localization targets could lose the incentives offered under the policy.
The 30% EV Target and What Comes Next
Pakistan is pushing to transform its transport sector through the New Energy Vehicle Policy (NEVP) 2025-2030, targeting a 30% share of electric vehicles in new vehicle sales by 2030. The Auto Policy 2026-31 is built to support that goal by making local EV production cheaper and more practical.
To keep the industry honest, the policy calls for two audits annually of the automotive sector, including third-party audits of local production and export incentive payments. The government also plans a new institution to raise standards. It plans to establish the Pakistan Automotive Testing Institute to strengthen technical capabilities, supporting research, vehicle testing, certification, and independent audits.
The government aims to introduce legislation governing the Automotive Development Levy by December 2026.
Still Waiting for Final Approval
It is important to note that this is still a draft. The policy still requires final approval from the Economic Coordination Committee (ECC) and the federal cabinet. On top of that, Islamabad will send the auto policy to the IMF for review in ‘a few days,’ Engineering Development Board CEO Hamad Ali Mansoor said. Pakistan is currently under a $7 billion IMF program, as part of broader trade reforms under its National Tariff Policy. The IMF’s sign-off could still shape the final version of several key measures, especially around tariffs and tax rates.
What This Means for Pakistani Car Buyers
If the policy passes in its current form, the impact on ordinary consumers could be significant. Lower EV taxes, bigger EV loans with longer repayment periods, and more locally made parts could all push car prices down over the next two to three years. The shift toward local manufacturing also means more jobs for Pakistani workers in factories, supply chains, and testing facilities.
However, the $25 billion savings figure is a projection, not a guarantee. It depends on manufacturers actually hitting localization and export targets, and on the government following through with the institute, the levy legislation, and the audit regime it has promised.
Frequently Asked Questions
What is the Pakistan auto policy 2026-31?
It is a five-year plan approved in draft form by PM Shehbaz Sharif that aims to boost local vehicle and auto parts manufacturing, grow exports to $6 billion, encourage EV adoption, and save nearly $25 billion in foreign exchange. It still needs ECC, cabinet, and IMF approval to become final.
How much will the policy save Pakistan?
The draft estimates $17.7 billion in savings from local manufacturing and $6.9 billion from EV adoption, totalling around $25 billion over five years. These are projections based on reduced reliance on expensive fully built vehicle imports.
What are the new EV tax rates under the policy?
Battery electric vehicles will attract just 1% sales tax, range-extended EVs will be taxed at 6%, and plug-in hybrids at 9%. The government rejected the IMF’s suggestion of an 18% sales tax on EVs. Luxury EVs above $75,000 will also pay a 10% federal excise duty.
How does the new EV financing limit help buyers?
The policy raises the EV loan limit from Rs3 million to Rs10 million and extends the repayment period from three years to five years. This lowers the monthly cost and makes it easier for middle-income families to buy an electric car for the first time.