Pakistan’s SME auto parts sector has raised concerns over proposed tax relief on luxury vehicles priced above PKR 10 million.
Industry representatives argued that such a move would be difficult to justify while was implementing tough fiscal measures under its IMF programme.
The industry has instead called on the government to cut sales tax on vehicles with engine capacities below 1,000cc from 18% to 9%, saying the measure would support middle-income consumers while boosting domestic manufacturing and employment.
“The rationale is simple. Small cars serve the masses of our middle-class consumers. A tax reduction will directly benefit SME auto parts manufacturers by increasing production volumes and creating more job opportunities in the current economic situation. This is a win-win for both the industry and the government,” said Mashood Khan.
Khan also drew attention to Pakistan’s growing dependence on imported vehicle components. He said imports of completely knocked-down (CKD) and semi-knocked-down (SKD) kits reached $2.118 billion in FY2025-26, while the combined figure over the past four years stood at around $6 billion.
He argued that such import levels were unsustainable given Pakistan’s ongoing IMF programme and the need to conserve foreign exchange.
The industry further maintained that government policies have traditionally benefited a limited number of high-end vehicle buyers, while doing little to strengthen local SME auto parts manufacturers.
“On record, localization in the high segment for Chinese and Korean brands over the last ten years has been negligible and has not supported SME auto parts manufacturers,” Khan said.
The sector welcomed the Ministry of Industries’ focus under Haroon Akhtar on expanding the role and capacity of SME auto parts manufacturers in the upcoming Auto Policy. The ministry had initially prepared the draft policy.
Khan questioned whether limited fiscal resources should be directed toward reducing taxes on expensive vehicles when millions of Pakistanis are already facing the effects of higher taxes and broader economic adjustments.
“At a time when every rupee of revenue matters and every concession carries a fiscal cost, reducing taxes on luxury vehicles sends a powerful message about policy priorities,” he said.
He added that vehicles priced at PKR 10 million or more were largely beyond the purchasing power of ordinary Pakistanis, potentially creating the impression that tax concessions were being extended to affluent buyers while the broader population continued to deal with inflation, higher taxes and reduced government support.
The industry acknowledged that the government could justify the proposed incentive as a way to promote cleaner transportation and encourage environmentally friendly technologies. However, Khan said any such policy should be accompanied by firm localization requirements.
He proposed that beneficiaries should be required to meet binding localization targets and maintain at least one vehicle model in Pakistan for five years rather than frequently replacing locally assembled models.
Such conditions, he said, would help ensure that incentives for cleaner vehicles also translate into greater domestic manufacturing, technology transfer and opportunities for SME auto parts producers.
