Pakistan automotive policy delays and tax increases

The Pakistani federal government has postponed the rollout of the Auto Policy 2026-31, a framework designed to promote electric and hybrid vehicles. The delay follows significant opposition from local automobile manufacturers who argued the draft favored electric vehicles and created unequal market conditions.

The postponement follows the expiration of the previous Auto Industry Development and Export Policy on 30 June 2026. This expiration triggered an automatic increase in the general sales tax on hybrid and plug-in hybrid vehicles, rising from 8.5% to 25% on 1 July 2026. Consequently, manufacturers such as Toyota and Honda have raised hybrid vehicle prices by more than Rs1.3 million, leading some firms to suspend invoicing and deliveries.

Prime Minister Shehbaz Sharif has directed Deputy Prime Minister Ishaq Dar to prepare a revised draft. Industry groups, including the Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM), are advocating for a balanced tax structure, increased support for local manufacturing, technology transfer, and the establishment of a charging network prior to a full transition to electric vehicles.