Pakistan proposes new automotive policy with tax changes

The Pakistani government has approved a draft of the Automotive and Auto Parts Policy 2026–31, which introduces significant changes to taxes and duties for both conventional and electric vehicles. Prime Minister Shehbaz Sharif has approved the final draft, which will now be submitted to the International Monetary Fund (IMF) for consultation before seeking federal cabinet and parliamentary approval.

The proposed policy includes an Automotive Development Levy based on engine capacity. Under the draft, vehicles with engines between 1,001cc and 2,000cc would face a 2% levy, while vehicles exceeding 2,000cc could face a 10% levy. These charges would apply to both imported and locally manufactured vehicles. Conversely, vehicles below 1,000cc, two-wheelers, and agricultural tractors would remain exempt.

For new energy vehicles, the policy proposes varying sales tax rates: 6% for Range Extended Electric Vehicles (REEVs), 9% for Plug-in Hybrid Electric Vehicles (PHEVs), and 1% for Battery Electric Vehicles (BEVs). Additionally, a 10% federal excise duty is recommended for electric vehicles valued above $75,000. While some conventional models, such as the Toyota Yaris, could see price reductions due to customs duty adjustments, the final impact on consumers depends on the implementation framework and IMF negotiations.