Pakistan's automotive sector is facing growing uncertainty as unresolved disagreements over tariffs and industry policy direction continue to delay decisions affecting vehicle manufacturing, localisation, electric vehicle (EV) adoption and long-term investment planning.

The government's proposed auto policy has stalled due to differences over vehicle and parts tariffs, with a ministerial committee led by the Power Minister referring the matter to Prime Minister Shehbaz Sharif for a final decision, according to local media reports. Several meetings have been held to reach consensus on tariff structures, but disagreements between the Ministries of Commerce and Industries have prevented progress.

Officials stated that the government must decide whether to proceed under the National Tariff Policy (NTP) or the proposed auto policy, as both frameworks cannot operate simultaneously.

The Ministry of Industries and Production has maintained that customs duties on completely knocked-down (CKD) kits, raw materials, subcomponents and assemblies fall under the Tariff Policy Board's jurisdiction. It has called for an urgent meeting to recommend an interim tariff mechanism until the new auto policy is finalised.

Further discussions have also been delayed due to scheduling conflicts, including the Power Minister's visit to Saudi Arabia and Commerce Secretary Jawad Paul's participation in trade negotiations with the United States. One proposal under consideration is a single tariff structure for all New Energy Vehicles (NEVs).

EV policy implementation affected

The policy deadlock is also affecting the implementation of Pakistan's National Electric Vehicle Policy 2025-30, which aims to increase EVs' share of new vehicle sales to 30% by 2030 while saving approximately two billion litres of fuel imports annually. The policy also targets nationwide charging infrastructure development, local manufacturing growth, increased exports and a reduction of approximately 4.5 million tons of carbon emissions annually.

However, industry participants stated that uncertainty over tariffs, localisation requirements, export obligations and the broader auto policy framework is making future investment planning difficult for existing manufacturers and potential new entrants.

Regulations for EV charging infrastructure have also been delayed. Draft rules prepared in 2024 remain pending due to coordination issues between the Engineering Development Board and the National Energy Efficiency and Conservation Authority, slowing plans for a nationwide charging network.

Industry raises concerns over tariff liberalisation

The proposed tariff changes under the National Tariff Policy 2025-30 have generated debate within the automotive industry. Vehicle manufacturers and component suppliers have warned that the changes could affect the vendor ecosystem and manufacturing capabilities developed over four decades, potentially impacting employment, investment and localisation.

Supporters of tariff liberalisation argue that reducing protection would increase competition and improve productivity. Local manufacturers, however, contend that vehicle affordability challenges are driven more by Pakistan's overall tax structure than tariff protection.

"The country's cumulative tax architecture, rather than trade policy, has kept new car ownership among the lowest in the region," said Ishtiaq Hussain Siddiqi, Chief Executive of SM Engineering.

Siddiqi stated that the automotive sector contributes significant indirect tax revenue but faces multiple taxes, including customs duty, additional customs duty, regulatory duty, federal excise duty, sales tax and comparatively high corporate tax rates. He cited India as an example often used in support of tariff liberalisation, noting that the country maintains tariffs of 60% to 100% on imported passenger vehicles depending on engine size. He added that tariff concessions are generally linked to EVs and local manufacturing commitments.

India also uses measures such as import licensing restrictions, Bureau of Indian Standards certification requirements and domestic preference policies under the Make in India programme.

"Indian officials describe this not as protectionism, but as sequenced, conditional industrial policy designed to extract performance in exchange for market access," Siddiqi said.

He further added that Pakistan's automotive sector includes passenger cars, light commercial vehicles, trucks, buses, tractors and two- and three-wheelers, supported by nearly 2,000 local parts manufacturers. Siddiqi warned that removing protection without broader reforms could reduce manufacturing activity in exchange for short-term vehicle price reductions.

His recommendations included stricter enforcement of SRO 693, rationalisation of the layered tax structure and correction of the CBU-CKD duty anomaly introduced under the Finance Act 2026, which has made imported completely built-up (CBU) vehicles and certain components cheaper than CKD kits used for domestic assembly.

Localisation concerns remain

Automotive analyst Mashood Ali Khan highlighted concerns over tariff reductions under the National Tariff Policy, stating that Auto Policies covering 2016-2021 and 2021-2026 brought new market participants but many failed to achieve meaningful localisation despite receiving tariff advantages of approximately 25%.

"New entrants focused on launching models frequently rather than deepening localisation," Khan said.

He noted that established manufacturers, commonly referred to as the "Big Three", achieved localisation levels of 60-70%, while several newer Korean and Chinese entrants contributed less significantly to localisation efforts. Khan questioned whether reducing tariffs further to 15% would improve localisation when higher protections had not achieved the objective.

He called for mandatory localisation commitments, measurable targets for developing local components over the next five years and greater focus on domestic raw-material production through business-to-business facilitation. He also urged similar measures for the truck and bus segments, where imported models continue to affect domestic parts manufacturers.

Calls for greater competitiveness

IBA Assistant Professor and international trade specialist Aadil Nakhoda acknowledged that Pakistan's complex tariff structure has contributed to high vehicle prices and stated that the National Tariff Policy aims to address the issue. However, he cautioned against treating tariffs and taxes as equivalent policy tools.

"A tariff is worse than a tax. Customs duties and ACD add to the price, increasing the base on which other taxes are calculated," he said.

Nakhoda compared Pakistan's automotive sector with India's, which produces more than 4.4 million passenger vehicles annually and has numerous original equipment manufacturers operating in a competitive market.

He noted that Indian auto-parts manufacturers export products worth more than US$ 20 billion annually and maintain research and development capabilities, whereas Pakistan lacks Tier-1 suppliers and significant R&D investment. According to Nakhoda, cascading tariffs and local-content requirements have protected an uncompetitive oligopoly rather than creating a globally competitive industry.

"India is liberalising through FTAs with the EU and ASEAN, shaping its industry for future competitiveness," Nakhoda said.

He argued that Pakistan's automotive industry should focus on productivity-enhancing certifications, standards-based non-tariff measures and integration into global supply chains rather than continued reliance on tariff protection.

Export performance remains limited despite subsidies

The tariff and competitiveness debate comes amid renewed scrutiny of Pakistan's automotive export performance. According to trade expert Dr Manzoor Ahmad, Pakistan's automobile industry has received more than PKR 250 billion (US$ 899 million) in government subsidies over the years, yet passenger vehicle exports remain negligible.

Dr Ahmad stated that Pakistan has historically focused on protecting its domestic automotive market rather than developing an export-oriented industry. Local assemblers benefited from high tariffs, import restrictions and tax concessions while facing limited pressure to compete internationally.

Under the Auto Policy 2021-26, export targets were introduced and linked to manufacturers' import privileges. However, Dr Ahmad stated that assemblers failed to meet those targets and sought court stay orders against the requirements.

Despite continued government support through concessionary schemes and special statutory regulatory orders (SROs), Pakistan's passenger vehicle exports remain close to zero. Automotive parts exports, excluding tyres, are also limited at approximately US$ 20 million annually.

In comparison, countries such as Thailand, Mexico, Morocco, Türkiye, Vietnam and Indonesia have developed automotive export industries worth billions of dollars through integration into global supply chains. Dr Ahmad argued that Pakistan should move beyond import substitution and focus on exports, technology transfer and international partnerships.

He stated that the National Tariff Policy 2025-30 could provide a framework for reform through reduced reliance on protectionist measures and improved international competitiveness. Industry experts added that future government incentives should be linked to export performance, technological advancement and innovation rather than solely protecting the domestic market.