Pakistan's proposed Auto Policy 2026-31 has been put on hold after objections from the domestic automotive industry, prompting the government to restart the policy drafting process amid concerns over the transition to electric vehicles (EVs) and its impact on existing manufacturers.

The Ministry of Industries and Production prepared the new policy following consultations with stakeholders, with a focus on promoting EV adoption to reduce Pakistan's dependence on imported petroleum products. The proposal gained additional attention following the US-Iran conflict, as Pakistan imports around 80% of the petroleum products it consumes.

However, local automakers raised concerns over the draft policy and approached Prime Minister Shehbaz Sharif, requesting a review. According to reports, the government subsequently withdrew the proposal and formed a new committee to prepare a revised version. Prime Minister Sharif has tasked Deputy Prime Minister Ishaq Dar with drafting the new auto policy.

The delay has also created uncertainty in the automotive market. The previous Auto Industry Development and Export Policy 2021-26 expired on June 30th, 2026, and with no replacement policy announced, tax concessions for hybrid vehicles lapsed automatically.

As a result, the General Sales Tax (GST) on hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs) increased from the concessional rate of 8.5%-25% from July 1st, 2026, matching the rate already applicable to conventional petrol and diesel vehicles.

The tax increase has resulted in higher prices for hybrid models, with Toyota and Honda increasing prices by more than PKR 1.3 million (US$ 4,600) in some cases. The uncertainty surrounding the new policy has also prompted some manufacturers to suspend invoicing and vehicle deliveries.

The delay has been criticised by the Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) and other industry representatives, who have called on the government to introduce an interim tax structure, such as an 18% GST on hybrid vehicles, until Pakistan develops its EV charging network and local EV components industry.

Industry stakeholders said they support the transition to electric mobility but argued that the shift should be gradual and accompanied by greater localisation, technology transfer and measures to support existing manufacturers.

PAAPAM has proposed linking EV incentives to increasing levels of localisation each year while encouraging local production of batteries, electric motors and electronic components. It has also called for measures to help existing parts manufacturers convert their facilities for EV production and to ensure equal opportunities for companies already manufacturing conventional vehicles to introduce EVs and hybrid vehicles.

The association further argued that companies currently importing most vehicle components and carrying out basic assembly should also receive support during the transition.

According to PAAPAM, the proposed Auto Policy 2026-31 provided incentives for EVs without a clear roadmap for conventional vehicle manufacturers and auto parts suppliers to transition. The association said that extensive EV incentives without a phased implementation plan could encourage imports of EV kits instead of local manufacturing and could affect existing investments and employment across Pakistan's automotive industry.