ISLAMABAD: The inter-ministerial committee headed by Minister for Power, Sardar Awais Ahmad Khan Leghari tasked to suggest amendments in the draft of Automotive and Auto Parts Manufacturing Policy 2026-31 has proposed a major restructuring of the automobile sector, with a focus on integrating Pakistani auto parts into global value chains, promoting new energy vehicles (NEVs), reducing vehicle prices, increasing domestic value addition and gradually lowering automobile tariffs. According to official documents the committee has agreed to seven broad principles aimed at transforming the sector over the next five years. The proposed framework seeks to move the auto industry away from excessive reliance on tariff protection and towards performance-based incentives, export obligations, competition, technological upgrading and greater localization. One of the central proposals is the introduction of a mandatory export regime for original equipment manufacturers (OEMs), backed by legally enforceable targets and penalties for non-compliance. Under the proposed policy, car, jeep and SUV manufacturers would be required to increase exports from zero in 2026-27 to 12 percent of factory-gate production value by 2029-30 and 2030-31. The corresponding export value is projected at $160. 89 million in 2027-28, $347 million in 2028-29, $558. 2 million in 2029-30 and $596. 1 million in 2030-31. For tractors, the export target would rise from 5 percent in 2026-27 to 15 percent in 2030-31, while bikes and rickshaws would move from zero to 15 percent over the same period. The committee estimates that mandatory OEM exports could generate a cumulative $2. 391 billion during the five-year policy period. In addition, auto parts manufacturers would be expected to increase exports substantially. Their projected exports have been estimated at $240 million in 2026-27, rising to $700 million by 2030-31, with cumulative exports of $2. 195 billion during the policy period. Combined exports by OEMs and parts manufacturers are projected to reach $4. 586 billion over 2026-31, increasing from $257. 44 million in 2026-27 to $1. 581 billion in 2030-31. The committee has proposed that export targets should become a condition of manufacturing licences. Failure to meet the mandatory export target could result in the imposition of additional customs duty on imported completely knocked-down (CKD) kits equivalent to the value of the export shortfall. Continuous failure could ultimately result in cancellation of the manufacturing licence. OEMs would be allowed to meet their export obligations through exports of completely built units (CBUs) or parts manufactured either in-house or by Pakistani parts manufacturers. However, where an OEM purchases parts from a local manufacturer to meet its export target, such exports would have to be additional to the parts manufacturer’s existing exports. To encourage exports, the committee has agreed to a fiscally neutral Drawback of Local Taxes and Levies (DLTL) scheme. Under the proposed mechanism, eligible OEMs and parts manufacturers would receive 10 percent of net FOB export value as baseline support, with an additional 5 percent available where export value increases by at least 5 percent over the previous year. The scheme would be funded through Federal Excise Duty (FED) imposed on internal-combustion-engine vehicles. The committee estimates total FED collection of about Rs349 billion during the policy period, against DLTL disbursements of about Rs191 billion. Payments would be linked to realization of export proceeds through the State Bank of Pakistan and subject to third-party audits. The proposed policy also introduces a Minimum Domestic Value Addition (MDVA) regime to quantitatively measure localization in the automobile sector. The committee has proposed calculating domestic value addition on the basis of local materials and parts, domestic labour and eligible factory overheads. Local materials and parts would carry a 75 percent weight, labour 10 percent and eligible factory overheads 15 percent. For conventional cars, minimum domestic value addition would gradually increase to 40 percent by 2030-31. For conventional LCVs, trucks and buses, the requirement would rise to 45 percent and 40 percent respectively. The requirement for conventional tractors would increase to 80 percent, while bikes and rickshaws would reach 90 percent by 2030-31. For NEVs, the minimum domestic value addition requirement would initially remain comparatively low at 10 percent, increasing to 15 percent by 2030-31. The proposed regime would require manufacturers to provide detailed bills of material, country of origin, supplier identity, acquisition costs, payroll and factory expenditure. Manufacturers and Tier-1 parts producers would also submit domestic value-addition statements twice a year, with risk-based third-party audits. Non-compliance could attract a levy of up to 10 percent on imported parts, while continuous non-compliance for two years could result in termination of the manufacturing licence. The committee has also agreed to a substantial reduction in automobile tariffs, with the proposed framework targeting up to 80 percent reduction in tariffs, alongside elimination of regulatory duty (RD) and additional customs duty (ACD). The tariff structure would be aligned with the National Tariff Policy, with a one-year lag for application to the automobile sector from FY2026-27. The committee has also agreed that tariffs should be reviewed after two years, taking into account energy costs, taxation, interest rates, exchange-rate flexibility and export performance. The policy would introduce new tariff lines for NEV trucks, buses, tractors and L6/L7 category vehicles, while technical skills programmes would be developed, particularly for NEVs. The proposed tariff structure shows conventional car tariffs declining progressively through 2030-31. For example, the combined customs duty, FED and sales tax structure for cars/SUVs in several engine categories is scheduled to move towards lower customs duty levels, while additional FED would apply to conventional vehicles. The committee has given considerable attention to electric and other new energy vehicles. It has agreed to equal treatment for battery electric vehicles (BEVs), range-extended electric vehicles (REEVs) and plug-in hybrid electric vehicles (PHEVs) under the proposed New Energy Vehicles Policy. The package includes 1 percent sales tax on NEVs, parts and raw materials, exemption from FED, capital value tax (CVT) and withholding tax on NEVs, and a proposal to impose additional FED on conventional vehicles to compensate for the price reduction resulting from tariff rationalisation. The committee has also agreed to increase the credit limit for NEV purchases from Rs3 million to Rs10 million, while extending the financing tenor from three years to five years. Hybrids would be treated at par with conventional vehicles for tariff and sales tax purposes. Import duty on charging stations would be reduced to 1 percent, while swapping stations could receive support through viability-gap funding. The proposed policy seeks to partly finance incentives for NEVs and the export-support regime through additional FED on conventional vehicles. According to the committee’s estimates, additional FED collection from locally produced vehicles would total about Rs301. 05 billion during 2026-31. An additional Rs48. 88 billion is projected from imported vehicles, bringing total additional FED collection to approximately Rs349. 94 billion. The highest additional FED rate proposed for locally produced vehicles is 20 percent for vehicles above 3, 000cc, while lower rates would apply to smaller engine categories. The committee has projected that tariff reductions and greater competition could help contain automobile prices, although the proposed additional FED on conventional vehicles would partly offset the benefit. The report estimates that prices of locally manufactured cars could remain broadly stable until 2029-30 if duties, taxes and rupee-dollar parity remain unchanged. For example, the estimated price of a Suzuki Alto under the proposed tariff structure is around Rs3. 13 million during 2026-30, while a comparable Honri NEV is estimated at about Rs3. 55 million. Similarly, the estimated price of a Honda Civic is Rs9. 44 million, compared with Rs11. 05 million for the comparable Haval PHEV, while a Kia Sportage is estimated at Rs9. 59 million against Rs9. 99 million for the comparable Deepal S05. The committee has estimated substantial foreign exchange savings from local manufacturing and value addition. The report estimates that importing vehicles as CBUs over 2025-26 to 2030-31 would involve a cumulative CIF value of $38. 75 billion. In contrast, projected imports of CKD kits, parts and raw materials for domestic manufacturing are estimated at $21. 09 billion during the period. The resulting estimated foreign exchange saving is therefore $17. 70 billion over the six-year period, rising from $2. 57 billion in 2025-26 to $4. 09 billion in 2030-31. The committee has also proposed establishing an Auto Parts Export Council (APEC) to coordinate export promotion and integration of Pakistan’s parts industry into international supply chains. The council would be headed by the Minister for Industries and Production and include the Secretaries of Industries and Commerce, Chairman TDAP, CEO EDB and three industry representatives. Its responsibilities would include promoting Pakistan as a low-cost destination for auto parts, developing an export-enhancement plan, identifying international markets, organising business-to-business engagements and exhibitions, improving quality and compliance, monitoring export targets and resolving exporters’ difficulties. The committee has agreed to the introduction of minimum domestic value-addition requirements, contract manufacturing to utilise idle production capacity and full digitalisation of Engineering Development Board approval processes. Importantly, SROs would be phased out by FY2029-30 and replaced by transparent, rules-based instruments. Biannual audits of parts cleared through EDB would also be conducted by the Directorate General of Post Clearance Audit, Pakistan Customs. International standards and consumer protection The proposed framework would also strengthen vehicle quality and consumer protection. The committee has agreed to adoption of 62 UNECE WP. 29 standards already adopted in 2025, with another 45 standards targeted for adoption by 2029. It has proposed early promulgation of legislation providing a statutory basis for enforcement of vehicle standards and outsourcing evaluation against standards to internationally accredited agencies. The proposed Pakistan Auto Testing Institute would conduct essential vehicle testing, particularly to support exports. Manufacturers would also be required to disclose sales-related information, including changes in prices as indicated and actual delivery dates. Post-booking price escalation risks would be shared by manufacturers according to advance payments, while manufacturing licences would contain data-sharing obligations. The committee estimates total additional FED collection of about Rs349. 94 billion over 2026-31. Against this, the proposed DLTL scheme would require about Rs191. 03 billion, while the estimated revenue loss from reduced sales tax on PHEVs is about Rs137. 79 billion. The combined budget requirement is projected at Rs328. 83 billion. Consequently, the report estimates net savings of about Rs21. 11 billion over the five-year policy period. However, its annual projections show the fiscal balance moving from a saving of Rs46. 84 billion in 2026-27 to a deficit of Rs44. 10 billion by 2030-31. Overall, the proposed Automotive and Auto Parts Manufacturing Policy 2026-31 represents a shift from a protection-oriented automobile regime towards export-linked incentives, measurable localization, tariff rationalisation, NEV promotion and performance-based licensing. The committee has sought to make export performance and domestic value addition central conditions for continued access to policy benefits, while using greater competition and lower tariffs to encourage technology, quality and improved vehicle features. Copyright Business Recorder, 2026
Awais-led panel proposes major restructuring of auto sector
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