Pakistan unveiled its new Auto Policy 2026-31 on 7 November, promising cheaper cars, tax breaks for electric vehicles and bigger car loans. Information Minister Attaullah Tarar and the prime minister’s adviser on industries, Haroon Akhtar Khan, presented the six-pillar policy in Islamabad. The numbers look generous, but none is in force yet: the tax cuts need International Monetary Fund approval, and the formal notifications have not been issued.
What the policy promises
The six pillars are affordable vehicles, export promotion, localisation, vehicle safety, electric mobility and transparency. Import duties on cars, kits and components will fall gradually over five years, and prices of all vehicles except luxury models should come down, though no specific cut or date was announced. The export target is $6 billion over five years, against about $200 million a year now.
The electric vehicle measures carry the most specific numbers. The government proposed sales tax of 1 percent for fully electric vehicles, 6 percent for range-extended electric vehicles and 9 percent for plug-in hybrids, against 18 percent for conventional cars. Electric vehicles up to $50,000 would be exempt from capital value tax, withholding tax and federal excise duty, while dearer models would be taxed normally as luxury vehicles. The car financing limit would rise from Rs3 million to Rs10 million, with repayment over five years instead of three.
What changed since the October draft
The 7 November announcement is not the first version of this policy. Prime Minister Shehbaz Sharif approved a draft on 20 October, and PakMirror reported in October that the $6bn export target was already in the draft. Three things moved. First, the luxury line moved down: the October draft discussed extra duty above $75,000, while the announced ceiling is $50,000, a cut of one third. Second, the financing tenure moved down: a September proposal offered seven years, while the announced framework offers five.
Third, the announcement adds two items the draft coverage did not carry: 45 new vehicle safety standards aligned with the United Nations WP.29 framework, and a cap of 20 percent on the advance payment at booking. One target did not move: the 30 percent electric share by 2030 is already the target of the separate National Electric Vehicle Policy 2025-30, so the new policy repeats an existing ambition.
The loan does not reach the tax-free ceiling
The two headline buyer numbers do not line up. At the interbank rate of Rs278 to the dollar, shown on the USD to PKR exchange rate today page, the maximum Rs10 million car loan buys an electric vehicle worth about $36,000. A $50,000 electric vehicle costs about Rs13.9 million, leaving a gap of about Rs3.9 million the buyer must pay from savings. The loan ceiling covers only about 72 percent of the tax-free ceiling.
Who pays for the tax cuts
The government says the policy will be revenue neutral, and the money is meant to come from petrol and diesel buyers. Earlier drafts proposed an Automotive Development Levy of 2 percent on vehicles between 1,001cc and 2,000cc and 10 percent above 2,000cc, with vehicles up to 1,000cc exempt, but those rates are not final. Even the exemption line is not settled: Tarar said petrol cars up to 800cc would stay outside the changes, while other accounts put the line at 1,000cc. The parts makers’ association warned the draft could put 1.5 million jobs at risk.
Five steps still stand between announcement and showroom
The policy now has to clear five gates: the federal cabinet must approve it, the IMF must agree to the tax concessions, the Economic Coordination Committee must clear the remaining fiscal measures, the State Bank must update its financing scheme, and the customs and tax departments must issue the notifications that turn proposals into rates a buyer can use. The IMF question matters because Pakistan reached a staff-level agreement in October on the fourth review of its $7 billion loan programme, unlocking about $1.21 billion once the board approves it. Any tax concession that cuts revenue without an offset has to be negotiated with the Fund.
What to watch next
Three tests will show whether the policy is real. First, the IMF response to the proposed 1, 6 and 9 percent sales tax rates: if the Fund refuses, the centrepiece of the package falls away. Second, the first tariff notification and the showroom prices that follow it: lower duties cut manufacturers’ costs, but assemblers are not obliged to pass the saving on, and petrol had already fallen Rs25.32 in four days to Rs352.59 a litre. Third, the State Bank’s financing circular: the Rs10 million limit and five-year tenure only help buyers once banks offer them.
