IMF Clears Pakistan’s Auto Policy 2026-31 With $6bn Export Target and Mandatory Localisation

Pakistan has secured the International Monetary Fund’s (IMF) clearance for its Auto Policy 2026-31, with Prime Minister Shehbaz Sharif approving the Autos and Auto Parts Manufacturing Policy 2026-31 after the lender raised no objections to the draft.

Sources say the policy will be cleared by Parliament as a mini-budget. The government will first obtain federal cabinet approval and then introduce a money bill in Parliament.

Key Targets of the Auto Policy 2026-31

The IMF had for months pushed for easier and wider adoption of new energy vehicles, which the government says will help avoid those oil imports. The policy also aims to use idle factory capacity, estimated at between 41 and 80 percent, through contract manufacturing. A midterm review is planned for 2028.

Export Support and Penalties

• Export support: Under the proposed Drawback of Local Taxes and Levies (DLTL) scheme, eligible exporters get support equal to 5 percent of net free-on-board export value, plus an additional 10 percent for qualifying incremental exports.
• Penalties: Manufacturers that fail to meet export obligations could face penalties of 1 percent to 3 percent of annual factory-gate sales.
• Certificates: Two consecutive years of non-compliance could lead to cancellation of manufacturing certificates, except in cases of force majeure.
• Global supply chains: Automakers must secure export opportunities through the global supply chains of their international principals.

Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan said the policy marks a shift from import-dependent vehicle assembly toward export-oriented manufacturing, greater localisation and internationally competitive production.

Localisation Rules for Car Makers

Pakistan has about 2,200 auto parts manufacturers. A Vendor Upgradation and Technology Transfer Program (VUTTP) with an allocation of Rs2.1 billion will help them improve technology, quality certification and export readiness, and at least five anchor firms are targeted for investment during the policy period.

• Existing manufacturers must keep the domestic value addition they already have for each model. Those already at 50 to 65 percent localisation cannot reduce it simply because lower thresholds apply to others.
• They must raise domestic value addition by 2 percent a year, or 8 percent over the policy period.
• By 2030-31, minimum localisation will reach 40 percent for petrol and diesel cars and SUVs, 45 percent for light commercial vehicles, 80 percent for tractors and 90 percent for motorcycles and rickshaws.
• New energy vehicles face targets of 25 percent for cars and SUVs and 30 percent for motorcycles and rickshaws by 2030-31.

Failure to meet the applicable targets can add three percentage points of customs duty on relevant non-localised CKD imports in the following financial year, subject to the legal process.

Electric Vehicle Duty Concession

Battery electric vehicles (BEVs) valued at up to $15,000 will qualify for a concessional 5 percent customs duty during the first two years, provided importers set up domestic assembly or manufacturing. Companies must submit a surety bond and an irrevocable bank guarantee covering the customs duty difference, and must begin commercial production of the imported BEV variant by September 30, 2028. Companies that do not meet localisation and other performance requirements will not qualify for concessional tariffs on imported parts.

What It Means for Car Buyers

The policy provides for customs duty cuts over five years alongside localisation and export commitments. Final details will depend on cabinet and parliamentary approval, so buyers should not expect immediate price changes.

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