The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has proposed a new tariff structure for Auto Policy 2026-31, calling for higher duties on imported vehicles while seeking minimal or zero duties on raw materials.
In a position paper submitted for consideration during the formulation of the new auto policy, PAAPAM urged the government to structure import tariffs around the industry’s goals of greater localization, export growth, investment and employment.
The association has also requested a meeting with Prime Minister Shehbaz Sharif before the new policy is approved and implemented.
PAAPAM seeks protection for local industry
PAAPAM, which represents more than 300 member companies and around 1,200 firms across Pakistan’s automotive ecosystem, said the sector plays a significant role in employment and industrial activity.
According to the association, the automotive sector supports around 300,000 direct jobs and 1.5 million indirect livelihoods.
The industry includes 13 car assemblers, more than 50 motorcycle and electric-bike assemblers, 10 truck and bus assemblers and three tractor assemblers.
PAAPAM argued that the new tariff structure should encourage manufacturers to increase local production rather than rely heavily on imported components.
Concerns over proposed tariff reductions
The association has raised concerns over the National Tariff Policy 2025-30, which proposes reducing import tariffs to a maximum of 15 percent.
PAAPAM warned that applying such tariff reductions without considering sector-specific conditions could weaken Pakistan’s domestic automotive and auto parts industry.
The association estimated that the sector already faces a 34 percent structural cost disadvantage, which it attributed to high energy prices, financing costs, taxation, freight expenses, certification requirements and logistics inefficiencies.
PAAPAM also noted that domestic car sales volumes remain around 2005 levels, despite the market now being divided among 13 car assemblers and more than 40 models.
The association identified used-car imports and inconsistent restrictions on completely knocked down (CKD) kits as additional factors affecting the competitiveness of local manufacturers.
Proposed tariff structure
Under its proposed framework for Auto Policy 2026-31, PAAPAM has recommended different duty rates based on the type of imported product.
The association proposed:
- 50% duty on completely built units (CBUs)
- 40% duty on localized parts
- 30% duty on completely knocked down (CKD) kits
- 5% duty on locally produced raw materials
- Zero duty on imported raw materials
PAAPAM said the proposed structure is intended to promote localization while allowing manufacturers to access raw materials at competitive costs.
Industry warns against imported components
PAAPAM argued that maintaining a higher duty on localized parts could discourage assemblers from importing components from countries such as China, South Korea and Japan.
The association said previous experience showed that a 25 percent tariff had encouraged some new assemblers to rely heavily on imported parts.
According to PAAPAM, some manufacturers achieved localization levels of only 0 to 10 percent under such conditions, while legacy assemblers increased localization when tariffs were maintained at around 45 percent.
The association therefore believes that tariff policy should be designed to encourage greater domestic manufacturing and the development of local supply chains.
Auto parts exports seen as major opportunity
PAAPAM also highlighted exports as a major opportunity for Pakistan’s automotive component industry.
The association said the sector could target $1 billion in auto parts exports if government policy provides appropriate support and recognizes the longer development cycle associated with engineering products and components.
It proposed low-cost financing facilities for component exporters to help manufacturers expand production and compete in international markets.
PAAPAM also suggested reducing the export threshold required for obtaining exporter classification from 80 percent to 25 percent.
Under its proposal, the threshold could then be followed by incremental export targets over a period of five to 10 years.
Longer export realization period proposed
The association has also called for changes to foreign exchange regulations affecting exporters.
PAAPAM proposed extending the export realization period under State Bank of Pakistan foreign exchange rules from 180 days to 365 days.
It argued that auto parts manufacturers often require longer periods because research and development activities, engineering requirements and contract completion cycles can take considerably more time.
According to the association, extending the realization period would provide exporters with greater flexibility and could support the expansion of Pakistan’s auto parts industry in international markets.
Focus on localization and investment
PAAPAM’s proposals are aimed at creating an auto policy that encourages investment in local manufacturing while supporting the development of Pakistan’s engineering and automotive supply chains.
The association believes that a carefully structured tariff regime could help increase localization, reduce dependence on imported components and create opportunities for manufacturers to enter export markets.
The proposals will now form part of the wider discussion surrounding Auto Policy 2026-31 as the government considers the future direction of Pakistan’s automotive sector.
Also read: FBR Revises Customs Valuation for Imported Auto Parts
