Govt should avoid further delays and stop fiddling with auto policy

EDITORIAL: First things first: Federal Minister for Information and Broadcasting Attaullah Tarar said the Prime Minister had approved the final draft of the auto policy. The draft will now be submitted to the Federal Cabinet for consideration and requires clearance from the International Monetary Fund (IMF) before it can be formally adopted.

The proposed policy is in line with the National Tariff Policy (NTP) and aims to support new energy vehicles (NEVs) to reduce emissions on the roads and lower reliance on petroleum products, which are largely imported.

There are genuine concerns among local assemblers about narrowing the tariff differential between locally assembled vehicles and imports, including used cars.

However, at the same time, some players are pulling others down, which could be detrimental to the entire sector. They have been trying to prevent the proposed policy from being approved in its current form. They are said to be lobbying the IMF, the government, and other powerful circles at the expense of consumers at large.

The thorny issue is the duty and tax advantages being offered to NEVs. The idea is to increase NEV penetration, which would help lower carbon emissions, especially in cities where air quality is deteriorating every year.

The economic benefit is reduced reliance on largely imported petroleum products. A shift towards electrification makes even more sense as Pakistan’s energy mix is increasingly becoming cleaner and more reliant on indigenous sources.

The problem for some players is that NEVs would pose tough competition to their internal combustion engine (ICE) vehicles, potentially reducing their sales. They do not like that. Previously, the government had imposed a 1 percent GST on EVs (which also included range-extended electric vehicles, or REEVs), while GST on hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs) was 25 percent. That was unfair to the latter categories.

The new proposed policy attempts to address this imbalance, with GST proposed at 1 percent for EVs, 6 percent for REEVs, 9 percent for PHEVs, and 18 percent for HEVs. This is the right approach, as the tax rate increases according to the emissions associated with each category. These incentives, along with lower duties on EVs priced below USD15,000, would help increase NEV penetration in line with the government’s target of achieving a 30 percent NEV share by 2030.

If these incentives are withdrawn, or REEVs and PHEVs are clubbed with HEVs, lower-emission vehicles would be placed at a disadvantage. This may not bode well for the dual objectives of reducing emissions and cutting the fuel import bill.

The other issue is that, under the NTP 2025-30, import tariffs across industries are to be reduced in a phased manner.

The reduction in the auto sector was delayed by one year, as the new auto policy was supposed to take effect from this fiscal year. Tariff reductions on imported cars are being implemented from FY27. However, the auto policy is still being finalised.

Customs tariffs on completely built-up (CBU) vehicles have already been reduced and are planned to fall to a maximum of 15 percent over five years. Accordingly, the plan is to reduce tariffs on completely knocked-down (CKD) kits to maintain a tariff differential of up to 15 percent over the same period.

CKD tariffs were supposed to be reduced under the new auto policy, but without these adjustments, the tariff differential has turned negative in certain cases, putting local assemblers at a severe disadvantage.

Now, some legacy players are confusing policymakers. CKD duties differ for localised and non-localised parts. Assemblers with higher localisation levels, typically legacy players, face lower weighted-average duties than those with less localisation, generally newer players. Without any change in CKD duties, legacy players would still enjoy a positive tariff differential, while it would turn negative for certain newer players.

There are rumours that some players are trying to keep CKD duties unchanged under the new policy or delay its approval altogether. They would remain viable, albeit with lower profits, while some newer players could become unviable. If that happens, it would be unfair to the players that entered the market following the 2016 auto policy.

Another disadvantage would be the lack of incentives for older players to introduce new models. It would make more commercial sense for them to continue producing existing variants, for which tooling and other costs have already been amortised. That would not be good for the industry.

The government should avoid further delays and stop fiddling with the policy. The uncertainty is already hurting the sector, with many CKD kits stuck at ports awaiting clearance, adding to assemblers’ costs. Consumers are also delaying vehicle purchases, while those who are buying are largely opting for ICE vehicles. This is not only affecting overall auto sales but also slowing NEV adoption.

In a nutshell, there appear to be no roadblocks from the IMF as such. The relevant ministries and committees have already deliberated extensively and come up with the proposed policy. It is time to approve and implement it.

Copyright Business Recorder, 2026