Pakistan’s automobile sector is on the verge of its biggest policy reset in a decade. The draft Auto Industry Development and Export Policy (AIDEP) 2026–31 — officially expected to take effect from July 1, 2026 — is currently being vetted by a special committee formed by the Prime Minister. Once cleared by the Federal Cabinet and tabled in Parliament, it will redefine how cars are made, priced, financed, and imported in Pakistan for the next five years.
This complete guide covers everything Pakistani car buyers, investors, and industry stakeholders need to know about the new auto policy — from lower import duties and EV incentives to used-car reforms, consumer protections, localization targets, and key highlights of Budget 2026–27 for the automobile sector.
What Is the Pakistan Auto Policy 2026–31?
The Pakistan Auto Policy 2026–31 is the successor to the AIDEP 2021–26, which expires in June 2026. The new draft policy is formally titled the Automobiles and Auto Parts Manufacturing Policy 2026–31 and has been developed in close coordination with the Engineering Development Board (EDB) and the Ministry of Industries and Production.
Key goals of the new auto policy include:
- Shifting from protection-based assembly to performance-based manufacturing
- Reducing import tariffs gradually over five years
- Aggressively promoting New Energy Vehicles (NEVs) to reach 30% adoption by 2030
- Regulating commercial used-vehicle imports through formal channels
- Strengthening consumer protections — locking booking prices and penalizing delivery delays
- Increasing domestic value addition in complex auto parts like engines and transmissions
- Opening Pakistan’s auto market to meaningful, healthy competition
As of June 2026, Finance Minister Muhammad Aurangzeb confirmed the policy is being reviewed by the PM’s special committee. Deputy PM Ishaq Dar also reviewed the policy (June 2026), backing faster EV adoption to boost jobs, exports, and climate action.
Pakistan’s Auto Sector Today: The Starting Point
- 118 OEMs and assemblers operating in Pakistan — a dramatic expansion from the old “Big Three” Japanese brands era
- Over 90% localization achieved in two-wheelers and three-wheelers
- Passenger car localization remains at around 50%, mostly in low-value parts like seats and wiring harnesses
- Complex parts — engines, transmissions, battery systems — still heavily imported
- The industry receives Rs. 285.2 billion in annual customs duty concessions (57% of all national customs concessions)
- Global EV leader BYD (China) investing approximately $150 million to establish local EV production in Pakistan
- Pakistan currently exports virtually no finished vehicles — a key gap the new policy targets
Key Features of the Auto Policy 2026–31
1. Phased Reduction in CBU Import Duties
The policy proposes a phased reduction in customs duties on Completely Built-Up (CBU) vehicles imported to Pakistan. By 2030, the proposed duty structure will be:
| Engine Category | Current Duty | Proposed Duty by 2030 |
|---|---|---|
| 850cc and below | 56% | 35% |
| 851cc – 1000cc | 71% | 40% |
| 1001cc – 1500cc | 76% | 45% |
| 1501cc – 1800cc | 91% | 77% |
| 1801cc and above | 156% | 115% |
These are phased reductions, not overnight price cuts. The draft also plans to eliminate Additional Customs Duties (ACD), reduce Regulatory Duties by 80%, bring the weighted average tariff below 6%, and phase out Special Regulatory Orders (SROs) by 2030 in favor of a transparent tariff-based system.
2. Major NEV (Electric Vehicle) Incentives
The 2026–31 Auto Policy gives NEVs — Battery Electric Vehicles (BEVs), Plug-in Hybrids (PHEVs), Range-Extender EVs (REEVs), and Fuel Cell EVs (FCEVs) — the most generous incentive package Pakistan has ever offered. The government’s target is 30% NEV adoption by 2030.
| Vehicle Type | Tax Treatment |
|---|---|
| Locally assembled NEVs | 1% Sales Tax (vs 18% standard) |
| Conventional petrol vehicles | 18% Sales Tax (GST) |
| Hybrid vehicles | 9% Sales Tax |
| NEV-specific parts | 1% customs duty (3 years), then 5% |
| All NEVs | Exempt from FED, CVT, and WHT |
Budget 2026–27 confirmed EV tax relief is extended for locally assembled EVs. However, luxury imported EVs priced above Rs. 20 million face a new 30–40% FED to focus incentives on mass-market adoption.
3. L6 and L7 Vehicles — Pakistan’s New Affordable Urban Category
The draft introduces the L6/L7 vehicle category — lightweight urban vehicles positioned between motorcycles and traditional small cars. Targeting a price of Rs. 1.5–2 million, these vehicles address the mobility gap between a 70cc motorcycle and a Rs. 3 million+ small car.
Policy support for L6/L7 vehicles:
- 1% Sales Tax (vs standard 18% GST)
- Waiver of mandatory ED Paint facility requirement
- Concessionary CBU imports at 10% customs duty for 200 units per variant until June 30, 2028
- Partial subcontracting allowed for assembly
4. Regulated Commercial Used-Car Imports
The draft allows commercial used-vehicle imports through a formal regulated framework. Importers must have Rs. 350 million+ in capital, after-sales service networks, and pass mandatory WP-29 UNECE safety inspections. Used vehicle duties start at 40% above new CBU rates in FY2026, gradually equalizing by 2030. Maximum depreciation is capped at 30% even for vehicles up to 50 years old.
5. Consumer Protections — Booking Prices and Delivery Penalties
The most buyer-friendly provisions in the 2026–31 policy directly address Pakistan’s notorious car market problems:
- Booking prices locked — no arbitrary hikes after order confirmation
- Delivery beyond 30 days triggers automatic compensation at KIBOR + 3%
- OEMs must report bookings held beyond 60 days to EDB monthly
- Dealer parts markup capped at 20% above OEM purchase price
- Warranty responsibility squarely on OEMs and authorized importers
6. Relaxed Auto Financing
In collaboration with SBP, the draft proposes extending auto loan tenure to 7 years (from 5), reducing minimum down payment to 15% (from 20–30%), and raising the loan cap to Rs. 10 million, initially for tractors, NEVs, and vehicles below 1800cc.
7. Localization Targets for 2031
| Vehicle Segment | 2025 Baseline | 2028 Target | 2031 Target |
|---|---|---|---|
| Small cars (below 1000cc) | 60% | 70% | 80% |
| Mid-range cars | 35–45% | 50% | 60% |
| SUVs | 20–30% | 45% | 55% |
| Heavy commercial vehicles | 25–40% | 50% | 60% |
| Electric vehicles (cars) | Below 10% | 30% | 50% |
| EV 2-wheelers & 3-wheelers | ~50% | 70% | 85% |
Budget 2026–27: Auto Sector Key Decisions
New Taxes on Large and Luxury Vehicles
- Imported vehicles 2,000cc–3,000cc: 40% FED
- Imported vehicles above 3,000cc: 41% FED
- Vehicles priced Rs. 20–30 million: 30% SED
- Vehicles priced above Rs. 30 million: 40% SED
- New carbon levy up to 19.5% on large combustion-engine vehicles
Rs. 285 Billion in Customs Concessions for Auto Industry
- OEMs (assemblers): Rs. 219.6 billion
- Vendors (parts makers): Rs. 41.7 billion
- CKD & EV parts: Rs. 23.9 billion
- Total: Over 57% of all national customs concessions
Who Wins and Loses Under Auto Policy 2026–31?
Winners
- Car buyers — More choice, competitive prices, locked booking prices, and delivery accountability
- EV and hybrid buyers — 1% sales tax, duty exemptions, and growing EV ecosystem
- New OEM entrants — Easier market access, reduced SRO gatekeeping
- BYD Pakistan and Chinese EV makers — Policy perfectly aligned with their expansion plans
- Formal used-car importers — A legitimate, regulated commercial import pathway
Losers
- Legacy assemblers dependent on tariff walls — SRO protection phased out by 2030
- Grey-market used-car importers — Strict capital and compliance requirements
- Luxury vehicle buyers — Dramatically higher FED and carbon levies from July 2026
- Local vendors (if used imports aren’t carefully managed) — Risk of Rs. 60 billion annual displacement
Frequently Asked Questions (FAQs)
When does Pakistan Auto Policy 2026 take effect?
The new Auto Policy 2026–31 is expected to officially launch on July 1, 2026, following final Cabinet approval. As of June 17, 2026, it is still in final vetting by the PM’s special committee.
Will car prices in Pakistan go down in 2026?
Not immediately. The phased tariff reductions and regulated used imports will create competitive pressure over 1–3 years. However, inflation and exchange rates will continue to influence showroom prices in the short term.
What is the EV sales tax in Pakistan 2026?
Locally assembled NEVs are subject to 1% sales tax under the 2026–31 policy (confirmed in Budget 2026–27). Hybrid vehicles face 9%. Imported EVs priced above Rs. 20 million face 30–40% FED.
Can I commercially import used cars to Pakistan from 2026?
Yes, under a formal regulated framework. Commercial importers must meet strict capital (Rs. 350 million+), after-sales service, inspection, and safety compliance requirements. Initial duties are 40% above new CBU rates, phasing down toward parity by 2030.
What are L6 and L7 vehicles?
L6/L7 are a new lightweight urban vehicle category smaller than conventional cars but larger and safer than three-wheelers. They are expected to be priced at Rs. 1.5–2 million with 1% sales tax, designed to bridge Pakistan’s motorcycle-to-car mobility gap.
What is Pakistan’s EV adoption target by 2030?
The Auto Policy 2026–31 sets a target of 30% NEV adoption by 2030, with 85% domestic value addition in EV two-wheelers and three-wheelers (batteries, motors, controllers) by 2030.
Conclusion
Pakistan’s Auto Policy 2026–31 is the most ambitious, buyer-centric automotive reform framework the country has seen in a decade. It correctly identifies structural problems — over-protection of assemblers, weak localization of complex parts, near-zero exports, and a market that has consistently failed consumers. The draft creates a genuine framework for change: phased tariff cuts, strong NEV incentives, regulated used imports, locked booking prices, and real delivery penalties.
But Pakistan has seen bold policy announcements before. The critical test will be whether the Engineering Development Board actually enforces localization benchmarks, whether tariff savings reach consumers instead of being absorbed as OEM profits, and whether the consumer protection rules survive contact with powerful industry lobbies.
Stay with PakCitizenGuide.com for live updates as the policy officially launches from July 1, 2026.
Disclaimer: This article is based on the draft Auto Policy 2026–31 and Budget 2026–27 announcements as of June 17, 2026. Final policy details are subject to Cabinet approval and official Gazette notification.
