Prime Minister Shehbaz Sharif has approved major tax incentives for new energy vehicles (NEVs) under the draft Auto Policy for 2026 to 2031. The proposed measures aim to encourage electric vehicle adoption and support the development of Pakistan’s automobile industry.
Under the approved proposal, NEVs, completely knocked down (CKD) kits, parts, inputs and raw materials will be subject to a 1 percent sales tax. NEVs will also receive exemptions from federal excise duty, Capital Value Tax and withholding tax.
The government has also approved a major increase in the financing limit for people purchasing NEVs. The maximum loan amount will rise from Rs3 million to Rs10 million.
The maximum loan period will also increase from three years to five years. The changes are expected to make electric and other new energy vehicles more accessible to buyers.
Another incentive involves charging infrastructure. Customs duty on imported charging stations will be reduced to 1 percent. Battery swap stations will also receive support through viability gap funding.
The policy gives the most favourable tax treatment to battery electric vehicles (BEVs). Range extended electric vehicles (REEVs) will receive the next most favourable treatment, followed by plug-in hybrid electric vehicles (PHEVs).
The prime minister decided not to give all three categories identical tax treatment. He specifically directed officials to separate REEVs and PHEVs from BEVs in the new policy.
Hybrid electric vehicles and conventional internal combustion engine vehicles, meanwhile, will receive equal treatment in terms of duties and taxes under the approved framework.
The government has also made changes concerning conventional vehicles. The proposed federal excise duty on conventional cars below 1,000cc has been abolished.
Customs duty on all cars will also be reduced from 30 percent to 15 percent in the fifth year of the policy, covering fiscal year 2030-31.
The government expects the new policy to reduce automobile tariffs by up to 80 percent. Regulatory duty will be removed, while additional customs duty on imported cars will end after two years.
However, the overall protection available to existing automobile assemblers will remain relatively strong during the early years of the policy. Officials said protection would gradually decline as the five-year framework progresses.
The tariffs for completely built units will generally remain within the upper limits set under the National Tariff Policy, except during the final year. The tariff structure will also be reviewed after two years.
The review will consider factors including energy costs, taxation, interest rates, exchange rate flexibility and export performance.
The policy has been under discussion for several months. The Industry Ministry first presented a draft to the prime minister in June.
The proposal was subsequently reviewed by different government committees. A committee led by Power Minister Sardar Awais Laghari held 14 sessions before presenting its recommendations.
The committee described the proposed framework as an attempt to balance protection for the local automobile industry with greater competition.
One of the major objectives of the policy is to increase automobile exports. The government wants Pakistani auto parts manufacturers to become part of global value chains.
The policy also aims to promote electric vehicles across different categories. It seeks to improve vehicle quality and reduce prices while encouraging innovation, technology and better features.
The government plans to phase out statutory regulatory orders by fiscal year 2029-30. Tariffs for the first two years will remain unchanged under the approved framework.
The policy also includes measures to support automobile parts exports. The government will offer duty and local tax drawback schemes while introducing legally binding export requirements.
Officials also plan to attract at least five major parts manufacturing companies and develop small and medium-sized enterprise clusters around them.
Manufacturing licences will be linked to agreements with international principals and participation in global export markets. The policy also allows separate CKD imports for left-hand-drive vehicles.
Parts used for exports will be imported without duty. An Auto Parts Export Council will also be established to improve coordination and support the sector.
The government will introduce minimum domestic value addition requirements to measure local manufacturing. Contract manufacturing is also expected to reduce production costs by allowing companies to use existing idle capacity.
The draft Auto Policy has now been approved for 2026 to 2031. It will undergo legal vetting before implementation.
The Finance Ministry has also been directed to present the proposal to the International Monetary Fund for review. The final implementation will therefore depend on the completion of the required legal and policy processes.
The new framework could significantly change Pakistan’s automobile market, particularly for electric and new energy vehicles. The combination of lower taxes, larger financing limits and improved charging infrastructure could encourage more consumers to consider NEVs.
At the same time, existing conventional vehicle manufacturers will continue to receive protection during the transition period. Customs duties on imported vehicles are expected to decline gradually over the five-year period.
Also read: FBR Considers Ending Super Tax and Cutting Sales Tax
