Pakistan Plans Major Auto Industry and EV Reforms

Pakistan's proposed automobile policy includes tax exemptions for smaller vehicles, incentives for exporters and measures to make electric vehicles more affordable. Under the draft framework, two- and three-wheelers, tractors and vehicles with engine capacities of up to 1,000cc would be exempt from the proposed Auto Development Levy.

The government is also considering removing federal excise duty on imported and locally manufactured small vehicles with engine capacities not exceeding 1,000cc under Pakistan Customs Tariff heading 87.03. The proposal further seeks to bring the sales tax and development levy treatment of imported and locally produced conventional vehicles into alignment.

The proposed levy would remain applicable only throughout the policy period, with a sunset clause preventing it from being treated as a permanent measure under the proposed framework.

Revenue collected through the levy would support export rebates, research and development, supplier development, independent audits and the establishment of an automotive testing institute. The government has also proposed setting aside Rs2.1 billion for a Vendor Upgradation and Technology Transfer Programme.

However, the ultimate impact on vehicle prices will depend on the final levy rates, the tax structure applicable to individual models and whether manufacturers pass the resulting additional costs or savings on to buyers.

Battery swapping proposed to lower electric vehicle costs

The draft policy introduces a battery-as-a-service model designed to reduce the upfront cost of electric vehicles. Under this arrangement, buyers could rent batteries separately or exchange depleted units for fully charged ones instead of purchasing a battery alongside the vehicle.

The Ministry of Industries and Production, Engineering Development Board (EDB) and National Energy Efficiency and Conservation Authority (NEECA) would collaborate with vehicle manufacturers and charging service providers to establish the system.

According to the proposal, batteries can account for approximately 40% of an electric vehicle's overall price. Allowing consumers to pay for battery access separately could make vehicles cheaper to purchase initially, while swapping facilities could help drivers extend their journeys without waiting for conventional charging.

The EDB would examine regulations encouraging manufacturers to develop vehicles compatible with interchangeable batteries, particularly electric motorcycles, rickshaws and compact cars. However, widespread adoption would require common technical standards and commercially viable arrangements between manufacturers and service operators.

The proposed battery-swapping initiatives would also receive support through incentives available under the New Energy Vehicles Policy 2025-30.

Export support planned for automakers and parts manufacturers

The government intends to introduce a fiscally neutral Drawback of Local Taxes and Levies (DLTL) scheme to strengthen the global competitiveness of Pakistan's automotive and auto-parts industries.

Manufacturers registered with the EDB and meeting the prescribed domestic value-addition requirements would qualify for support under the proposed arrangement.

The scheme outlines a baseline compensation of 5% of the net free-on-board (FOB) value of eligible exports, calculated in Pakistani rupees. Exporters whose FOB export value increases by at least 5% compared with the preceding year would qualify for an additional incentive equal to 10% of the net FOB value of incremental exports.

For subsequent policy years, exporters would need to maintain export performance at or above the level recorded in the first year, FY2026-27, to remain eligible under the proposed conditions.

Payments would be subject to independent verification by reputable chartered accountancy firms with relevant industry expertise. The State Bank of Pakistan would release funds after the corresponding export proceeds had been received.

Eligible products would include automobile components and completely built vehicles, covering both left-hand-drive and right-hand-drive models.

The government aims to offset certain domestic taxes, levies and infrastructure-related expenses that cannot otherwise be refunded, while ensuring that public support is tied to verifiable export performance.

Rs2.1 billion earmarked for auto-parts suppliers

A Vendor Upgradation and Technology Transfer Programme is also planned to help smaller automotive component manufacturers improve their production capabilities. The EDB and Small and Medium Enterprises Development Authority (SMEDA) would jointly implement the initiative under the Ministry of Industries and Production.

The programme would provide small and micro enterprises with access to shared industrial facilities, technical training, modern production technologies and assistance in meeting industry compliance standards.

The initiative aims to help local suppliers become part of domestic and international automotive supply chains, including markets for replacement parts and after-sales services.

Funding would come from the SMEDA fund alongside Rs2.1 billion allocated by the Finance Division from revenue generated through the proposed Auto Development Levy.

Authorities expect the programme to improve the quality of locally manufactured components, strengthen domestic production capabilities and reduce dependence on imported parts.

Automotive exports targeted at $6 billion

The draft policy sets out ambitious goals for Pakistan's automobile sector by the end of the 2026-31 policy period.

Automotive exports are projected to reach $6 billion, while direct and indirect employment in the sector is expected to rise from 2.5 million to 3.2 million people.

The government estimates that increased local manufacturing and domestic value addition could save approximately $17.7 billion over five years compared with importing equivalent vehicles as completely built units.

Separately, the target of achieving a 30% share for new energy vehicles (NEVs) in new vehicle sales is projected to deliver $6.9 billion in fuel-import savings. Other anticipated benefits include better utilisation of surplus electricity, carbon-credit opportunities and improvements in public health.

These figures are government policy projections, not guaranteed results. Their achievement will depend on effective implementation, consumer demand, investment levels, access to financing, domestic production capacity and the final tax and tariff arrangements.