Pakistan auto industry experts raise concerns over budget measures

Auto experts and analysts have voiced concerns over the recently announced federal budget, warning that some of its measures could hurt Pakistan’s automobile sector and calling on the government to introduce safeguards for the industry.

Speaking to Business Recorder, Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) senior vice chairman and auto analyst Shehryar Qadir said it was disappointing to see the government’s direction in the federal budget for the upcoming fiscal year with regard to the auto sector.

“It is a poor outcome all round for the auto industry. While the government keeps stressing on strengthening the economy and promoting local manufacturing, the actions taken oppose that completely,” Qadir said.

He said instead of taking concrete steps to address structural constraints and the cost disadvantage of 34% faced by domestic auto part manufacturers due to expensive energy, freight, high interest cost, high taxes, and a lack of market scale leading to high fixed cost per unit, the government has proposed drastic reductions in import duties for completely built units (CBUs) and auto parts.

“This step will prevent Pakistan’s transition from a basic import-based assembly hub into a fully integrated auto manufacturer.

“In this situation, the original equipment manufacturers (OEMs) will not lose as being large companies it is far easier for them to pivot towards importing CBUs or completely knocked down (CKD) parts to merely assemble in Pakistan. They will only localise if they save 5%-15% from local procurement.”

Qadir was of the view that the government is taking steps that will irreparably damage 1,200 auto part manufacturing companies.

“Pakistan has proven capability where local vendors have achieved over 90% localisation for motorcycles and tractors (Pakistan is also exporting both) and up to 65% localisation for legacy Japanese assembled cars. In stark contrast the newer Chinese and Korean entrants due to significant tariff advantages in the last two consecutive auto policies have achieved little or no localisation.

He emphasised that the government must maintain optimum cascading tariffs on imported units and parts to make localisation financially viable.

Meanwhile, international trade expert and auto analyst Aadil Nakhoda said the headline is a long-overdue tariff rationalisation.

“Duties on imports of various cars have been significantly cut, specially the smaller variants. Consistent with National Tariff Policy 2025-30 (NTP 2025–30), this is a genuine step toward exposing assemblers to competition. But the relief for the larger engine size has been reversed from last year in the sense that imported vehicles of higher engine sizes have seen an increase in duties, while luxury EVs above Rs2 crore attract fresh Federal Excise Duty (FED). So the budget welcomes de-escalation at the lower end, which is much needed as it will increase competition in the market,” he said.

Nakhoda added that protection may migrate towards larger cars rather than disappear as is intended.

Customs-duty cuts are offset by new special excise duties of 86–92% on larger engines, plus regulatory duties shielding assemblers, so effective protection for low-value “screwdriver” assembly remains high, according to him.

“The anti-export bias through cascading tariffs remains unaddressed: as protecting the domestic market implicitly taxes exporters. Restrictions on used imports further blunt competition, leaving consumers with high prices and limited choice. Vendors continue to seek high regulatory duties on imported CBUs, which means less market competition and fewer vehicle choices for buyers. Critically, there is no sunset clause being applied to the policies as relief looks lobby-driven rather than efficiency-driven, so the pressure to genuinely localise is absent,” Nakhoda said.

He urged the government to “anchor the policy in a credible, time-bound tariff glide path with explicit sunset clauses, so protection visibly declines and firms must compete”.

The expert also suggested to cut tariffs on CBUs and on inputs symmetrically to reduce cascading and effective protection, easing the anti-export bias.

“Allow used-vehicle imports within transparent safety and emissions standards to inject immediate competition and discipline pricing. Tie any incentive on EVs, CKDs, or localisations to measurable value-addition and export performance at the firm-level, not to assembly volume or engine size. Replace discretionary SROs (Statutory Regulatory Order) with a predictable, rules-based regime that investors can plan around. The goal should be a sector where lower prices, quality, and consumer choice are delivered by competition, not engineered by ever-shifting protection,” Nakhoda emphasised.