KARACHI: In a landmark move aimed at transforming Pakistan’s automotive sector, the federal government has announced sweeping reforms under its new auto and tariff policies, as part of commitments made to the International Monetary Fund (IMF). The policies, detailed in a recent report by Chase Securities Pakistan, focus on reducing vehicle costs, promoting electric vehicles (EVs), and phasing out protective tariffs to enhance competition.
Key Policy Highlights
1. National Tariff Policy FY25-30: Lower Duties, Increased Competition
The government has committed to reducing the weighted average applied customs duty from 10.6% in FY25 to 7.4% by FY30, aligning with IMF recommendations. The policy acknowledges that the previous Automotive Industry Development and Export Plan (AIDEP) 2021-26 was overly protective, imposing high costs on consumers. Key measures include:
– Phased abolition of Additional Customs Duties (ACD):
– 7% ACD on specific goods to be abolished from July 2025.
– 2% ACD on the zero slab will also be removed, while duties on higher slabs (e.g., 4% ACD on 16% CD) will be reduced incrementally by 1% annually until 2030.
– Reduction in Regulatory Duties (RD) by 80%, with no new RDs permitted without sunset clauses.
– End to preferential treatment for localized parts, leveling the playing field for imports.
These changes aim to lower vehicle prices and encourage local manufacturers to compete globally.
2. Electric Vehicle Policy 2025-30: Driving Green Mobility
Pakistan’s new EV Policy targets 30% EV penetration in passenger cars and 50% in two/three-wheelers by 2030. Incentives include:
– Lower import duties on EV parts and sales tax concessions.
– Staggered duties for manufacturers setting up local EV assembly plants.
– Incentives for battery and charger production, plus subsidies for charging stations.
– A revenue-neutral scheme (via FY26 budget) to subsidize EVs through a supplementary tax on internal combustion engine (ICE) vehicles.
3. Budget FY26: Carbon Levy and Used Vehicle Imports
– Carbon Levy: A PKR 5 per liter levy on petrol, diesel, and fuel oil, phased over FY26–27, to discourage fossil fuel use and fund EV adoption.
– Used Vehicle Imports: Commercial imports of vehicles up to 5 years old will resume, increasing affordability but posing challenges for local assemblers.
IMF Commitments: Resilience and Sustainability Facility (RSF)
Under the IMF’s Extended Fund Facility (EFF), Pakistan has pledged reforms to decarbonize transport:
– Carbon Levy Implementation: Rs 5/liter tax on fuels by June 2025 (2nd EFF review).
– EV Subsidy Scheme: Revenue-neutral subsidies for EVs funded by ICE vehicle taxes (FY26 budget).
– Charging Infrastructure: Private sector incentives for charging stations via viability gap funding by 2027.
Impact on Auto Industry
The report highlights risks and opportunities for Pakistan’s auto sector:
– Assemblers (e.g., Indus Motors, Honda Atlas): Face margin pressures from tariff cuts and carbon taxes. Slow EV adoption may erode market share.
– EV Frontrunners (e.g., Sazgar, BYD-HUBC, Hyundai-Nishat): Stand to gain from policy support and early-mover advantages.
– Parts Manufacturers: Traditional suppliers may suffer as protections end, but EV component producers could thrive.
“While these policies aim to reduce costs and boost EV adoption, local manufacturers must adapt swiftly to remain competitive,” said Umer Ebrahim, Research Analyst at Chase Securities. “The success of the EV push hinges on infrastructure development and consistent policy execution.”
The FY26 budget, expected next month, will provide clarity on implementation timelines. Stakeholders await further details on subsidy structures and ICE vehicle taxation.