Pakistan wants its car industry to export vehicles and parts worth $6 billion over five years, or face fines of 1 to 3 per cent of annual production value and the loss of manufacturing licences after two consecutive misses. Prime Minister Shehbaz Sharif approved the draft Automotive and Auto Parts Manufacturing Policy 2026-31 on October 20. The industry itself is not buying it: a senior Japanese automaker executive told Arab News the $6 billion target was “simply unachievable”, and parts makers point to a 34 per cent structural cost disadvantage. It is not law yet: the draft still needs review by the International Monetary Fund, the Economic Coordination Committee, the cabinet and the National Assembly.
What the draft actually says
According to draft documents reviewed by Arab News, the policy sets mandatory export targets for vehicle assemblers and parts makers and makes exports a condition of continued manufacturing. “Failure to meet export targets for two consecutive years will result in cancelation of manufacturing certificate,” the documents say. The carrots are export-linked too: a 5 per cent Drawback of Local Taxes and Levies (DLTL) on net FOB export value, plus an additional 10 per cent on incremental exports if annual exports grow by more than 5 per cent.
The draft also pushes new-energy vehicles hard: sales tax of 1 per cent for battery electrics, 6 per cent for range-extended EVs and 9 per cent for plug-in hybrids, while hybrids and conventional cars stay at 18 per cent. EVs below $15,000 would get lower tariffs in the first two years, and the EV financing limit would rise from Rs3 million to Rs10 million. The average import tariff would fall to 15 per cent by 2030-31. The export target splits as $2.078 billion from cars, jeeps, SUVs and double-cabs, $233.4 million from tractors, $409.4 million from bikes and rickshaws, and $3.29 billion from parts.
The ladder: $256 million up to $2.19 billion
This is where the draft’s ambition meets arithmetic. The policy sets an annual ladder for total automotive exports, published in detail by PakWheels: $256.6 million in 2026-27, $671.8 million in 2027-28, $1.11 billion in 2028-29, $1.78 billion in 2029-30, and $2.19 billion in 2030-31, totalling $6.01 billion.
PakMirror’s own calculation on these published figures shows the scale of the jump. Pakistan’s auto sector currently exports around $190 million to $200 million a year, according to the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM). Against that baseline, the five-year target is about six times what the sector would export at today’s pace, and the final year’s $2.19 billion alone is about eleven times the current annual level. Year one sits near today’s level, year two nearly triples it, and the final two years demand exports the industry has never produced.
The industry does not believe it
PAAPAM Chairman Abdul Rehman Aizaz told Arab News: “Exports will not go up just by setting up a target.” He cited a 34 per cent structural cost disadvantage from utility, financing and tax costs, the lack of trade agreements opening markets in Africa, Central Asia and South America, and no financial rebates unlike exporters elsewhere in the region.
An official at a major Japanese automaker was blunter, telling Arab News anonymously that “this $6 billion export target does not reflect a very well-thought-out policy approach and is simply unachievable.” The Pakistan Automotive Manufacturers Association’s director-general, Razi ur Rehman, declined to comment until “things have settled down.”
There is also an internal fight over tariffs. Aizaz told Dawn that lowering the import tariff on parts to 15 per cent would phase out local parts manufacturers, warning: “This policy will make Pakistan an import destination country with no local industrial base in the auto sector.”
Car buyers will fund the exporters’ cheques
The money for the exporter incentives has to come from somewhere, and the draft points at buyers: an Automotive Development Levy on petrol, diesel and hybrid vehicles above 1,000cc, expected to collect more than Rs232 billion over five years, with legislation targeted by December 2026. This is another levy layered on motorists in a year when fuel levies have already been squeezing household budgets, landing just after petrol and diesel prices were revised again on October 21.
What happens next
The draft is approved only for consultation so far. Sharif approved it on October 20 for consultation and IMF review, after which it goes to the ECC, the cabinet and the National Assembly. The chain matters: the draft already rejects an IMF proposal to raise EV sales tax, and the Fund’s verdict on the incentives is still pending. Export contracts are priced in dollars, so makers will be watching the USD to PKR exchange rate today as closely as the policy drafts. For more, see PakMirror’s business and economy news from Pakistan.
