Auto Policy 2026-31 Approved: Cheaper Cars, 1% Tax on EVs, $6bn Export Target

Prime Minister Shehbaz Sharif has approved the Auto Policy 2026-31, a five-year plan that promises cheaper cars, big tax relief for electric vehicles, mandatory localisation and a $6 billion export target, the government announced at a press conference in Islamabad on Saturday, November 7.

The policy was presented by Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan and Federal Information Minister Attaullah Tarar. The final draft was approved after the International Monetary Fund (IMF) gave its nod, and it will now go to the federal cabinet.

Auto Policy 2026-31 at a Glance

• Duration: five years, 2026 to 2031
• Six pillars: affordable vehicles, exports, localisation, vehicle safety, electric vehicle (EV) promotion and transparency
• Export target: $6 billion cumulative over five years
• Booking limit: carmakers cannot take more than 20% of the vehicle price as advance payment
• Safety: 45 additional safety standards in line with UNECE WP.29
• Tariffs: duties on completely built units, components and assembly kits to come down every year

Will Car Prices Come Down?

According to Haroon Akhtar Khan, the prices of all vehicles except luxury vehicles will come down under the new policy, as tariffs on imported parts and completely built units are reduced step by step over five years. Information Minister Attaullah Tarar called the policy a significant step towards giving citizens affordable, high-quality vehicles and said it would increase competition in the market.

Early market estimates suggest small cars such as the Suzuki Alto and Cultus could become cheaper by around Rs50,000 to Rs110,000, while some plug-in hybrid SUVs could see larger cuts. However, no carmaker has yet confirmed model-wise price reductions, and the final savings will depend on tax notifications and tariff schedules that are still to be issued.

Big Relief for Electric Vehicles

The Auto Policy 2026-31 gives strong support to EVs, subject to IMF approval of the tax measures:

• Sales tax: 1% on pure battery EVs, 6% on range-extended EVs and 9% on hybrids
• Other taxes: EVs priced up to $50,000 exempt from capital value tax, withholding tax and federal excise duty
• Car financing: the State Bank car finance limit for EVs raised from Rs3 million to Rs10 million, with tenure extended from three to five years
• Charging equipment: sales tax cut to 1% and customs duty removed

Officials said the national target of 30% electric share in new vehicle sales by 2030 could be reached sooner. Sales of electric two-wheelers rose to about 240,000 in FY2025-26 from around 60,000 a year earlier.

Who Pays for the Incentives?

The incentives will be funded through a new Automotive Development Levy (ADL) on petrol and diesel (internal combustion engine) vehicles above 1,000cc. Vehicles up to 1,000cc will be exempt from the levy. The government says the package is designed to be revenue-neutral, meaning the levy will cover the cost of the EV and export incentives.

Exports and Localisation Under Auto Policy 2026-31

Localisation will be mandatory, with each manufacturer given targets for local content. Haroon Akhtar Khan said localisation was among the top priorities of the Prime Minister and that the government wants manufacturers to increase local content.

• A 5% drawback of local taxes and levies (DLTL) on exports
• An extra 10% incentive on incremental annual export growth
• Incentives only for companies that meet both export and localisation targets, with penalties for those that miss them

Pakistan currently has 16 car and SUV manufacturers and around 100 two-wheeler makers.

What It Means for Car Buyers

• Lower prices over time: gradual tariff cuts should make most non-luxury vehicles cheaper.
• Safer cars: new safety standards will apply to locally made vehicles.
• Smaller bookings: the 20% cap protects buyers from paying full price months before delivery.
• Cheaper EV ownership: lower taxes and bigger financing make electric cars and bikes more affordable.
• Higher cost above 1,000cc: the new levy may add to the price of bigger petrol cars.

What Happens Next

The Auto Policy 2026-31 will now be placed before the federal cabinet for formal approval, after which the Federal Board of Revenue and the Ministry of Industries and Production are expected to issue tax notifications and tariff schedules. Buyers are advised to wait for official notifications and confirmed price lists from manufacturers before making booking decisions.

For official updates, visit the Ministry of Industries and Production.

Read More: Auto Policy 2026-31: 1% Sales Tax on EVs Proposed