ISLAMABAD – Pakistan’s newly introduced Auto Policy 2026–31 gave a glimpse of hope of more affordable cars, but are these changes practical with fresh tax cuts, revised import duties, and a new tariff roadmap, as the government aims to make vehicles more accessible while encouraging competition?
Industry experts believe reality may be far more complicated. While some imported vehicles could become cheaper, the policy may also put Pakistan’s local auto manufacturing ecosystem under pressure.
Pakistan’s long-term economic strength depends more on manufacturing vehicle parts locally than simply assembling imported kits. Over the past several decades, the country’s three major automakers have invested heavily in local production facilities, creating an extensive network of small and medium-sized enterprises that manufacture thousands of automotive components. These investments have generated employment, transferred technical expertise, and strengthened Pakistan’s industrial base.
If you draw a comparison, several newer four wheeeler brands in Pakistan relied on assembling imported Completely Knocked Down (CKD) kits. The expert believes these companies have yet to make comparable investments in developing local parts manufacturing. Although the federal budget has reduced several taxes, there is still uncertainty over whether importers and distributors will pass those savings on to consumers. As a result, any reduction in showroom prices may be smaller than many buyers expect.
The expert believes the policy could provide short-term relief by reducing vehicle prices through lower import-related taxes. However, there is also a downside.
If imported components and vehicles become significantly cheaper, Pakistan’s domestic auto parts manufacturers may struggle to compete. Reduced demand for locally produced components could force some factories to scale back operations or shut down entirely, leading to job losses and weakening the country’s automotive supply chain. In other words, cheaper imports could benefit buyers today while creating long-term challenges for local manufacturing.
The proposed five-year tariff framework has also drawn criticism. The expert has urged the government to engage with all stakeholders before finalizing the policy, arguing that tariff decisions should strike a balance between encouraging competition and protecting domestic industry.
While lower tariffs can make imported vehicles more affordable, they may also discourage investment in local manufacturing if domestic producers are unable to compete with cheaper imports. A balanced policy, the expert says, is needed to protect Pakistan’s automotive ecosystem while still delivering benefits to consumers.
One of the biggest questions surrounding the new policy is whether it can make entry-level cars available within the Rs. 2 million to Rs. 2.5 million price range. According to the expert, the answer is yes, but with important compromises.
Affordable vehicles in this price bracket already exist in international markets, particularly in China, proving that such pricing is technically possible. However, manufacturers would need to remove many modern features to achieve these prices.
Advanced infotainment systems, premium interiors, enhanced safety technologies, electronic driver-assistance features, and convenience equipment all increase manufacturing costs. As a result, vehicles sold in this lower price range would likely offer only basic specifications compared to models currently available in Pakistan.
Despite the global shift toward electric mobility, conventional petrol-powered vehicles continue to dominate buyer preferences in Pakistan. The expert explained that electric vehicles are currently being purchased mainly by affluent consumers who already own petrol or hybrid vehicles.
For average Pakistani, purchasing a car often represents one of the largest financial investments of a lifetime. Because of this, buyers generally prioritize proven reliability, easily available spare parts, affordable maintenance, and strong resale value instead of experimenting with relatively new technologies. Until these concerns are addressed, petrol-powered vehicles are expected to remain the preferred choice for most consumers.
Alongside Auto Policy, Federal Board of Revenue (FBR) has implemented a revised tax structure for imported vehicles through four new Statutory Regulatory Orders (SROs) issued under the Finance Act 2026. The updated taxation system officially came into effect on July 1, 2026, introducing both tax reductions and higher duties depending on the category of imported vehicle.
Under the revised framework, cars previously subject to 10% RD will now pay 8% and highest Regulatory Duty slab has been reduced dramatically from 50% to 20%. These cuts are expected to lower the overall tax burden on many imported vehicles. However, the final price paid by customers will still depend on factors such as exchange rates, shipping costs, importer margins, and other applicable taxes.
The government has also lowered the Additional Customs Duty (ACD) on imported vehicles with engine capacities exceeding 1,300cc. The duty has been reduced from 6% to 4%. Meanwhile, several exemptions remain unchanged.
Cars, jeeps, and light commercial vehicles imported in Completely Knocked Down (CKD) condition with engine capacities of up to 1,000cc will continue to enjoy exemption from ACD. Imported vehicles with engines of 850cc or below will also remain exempt.
While several taxes have been reduced, the government has simultaneously introduced a Special Excise Duty (SED) on premium imported vehicles, imported vehicles with engine capacities between 2,000cc and 3,000cc will now attract an 86% Special Excise Duty whereas vehicles with engines above 3,000cc will face an even steeper 92% SED.
These charges will be imposed in addition to existing customs and regulatory duties, making luxury and high-performance imported vehicles considerably more expensive.
Commercial businesses importing used vehicles have also received some relief. Regulatory Duty on commercially imported used vehicles has been reduced, from 40% to 30%. However, this concession applies only to commercial imports.
The government’s revised tax regime delivers a combination of lower duties and higher taxes. Buyers considering standard imported vehicles may benefit from reductions in Regulatory Duty and Additional Customs Duty, potentially lowering import costs if those savings are passed on by importers.
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