Pakistan’s upcoming Auto Policy 2026–31 is facing delays after disagreements emerged over tax incentives for electric and other new energy vehicles. The uncertainty comes as discussions continue between the government, IMF, and relevant ministries.
According to reports, the government proposed a reduced sales tax structure to encourage the adoption of environmentally friendly vehicles. Under the proposal, new energy vehicles, including electric vehicles (EVs), would be subject to only 1% sales tax, while hybrid vehicles would be taxed at half of the standard sales tax rate.
However, IMF officials reportedly did not support the proposal and suggested that the standard sales tax rate should apply to all vehicle categories. The lender also recommended that any consumer relief should be provided through direct subsidies rather than reduced tax rates.
The delay has been further complicated by differences between the Ministry of Commerce and the Ministry of Industries and Production regarding future import duty structures. Both ministries are working on policies that must align with the broader National Tariff Policy, making consensus essential before final approval.
Officials are also discussing incentives for local manufacturing of electric vehicles and their components. Proposed measures include lower customs duties on EV-specific parts, tax exemptions on imports, and incentives aimed at increasing domestic production.
Another key feature of the draft policy is the push for greater localization. Authorities want manufacturers to achieve significant domestic value addition over the coming years, particularly in the two-wheeler, three-wheeler, and electric vehicle segments.
The policy also proposes additional levies on high-value petrol and diesel vehicles to encourage the transition toward cleaner transportation technologies.
With the current auto policy set to expire soon, stakeholders are closely watching developments as the government works to finalize a framework that balances industry growth, environmental goals, and fiscal requirements.