The auto policy Pakistan cannot afford to get wrong

With a new automotive policy expected to be announced, Pakistan stands at a familiar crossroads. The choices made in the coming weeks will decide whether the country builds a globally competitive manufacturing base or surrenders that ambition to a flood of imported cars. The stakes are too high, and the evidence too clear, for policymakers to hesitate.

Consider what already exists. Pakistan is the 34th largest producer of CKD vehicles in the world, and home to 31 brands offering more than 100 models. Seven of the world’s top ten automotive brands manufacture vehicles and parts on Pakistani soil.

The local manufacturing industry is pleading an enabling environment to grow as sizable and comparable industry among the peers; it rather is advocating sensible policy choices. It is a mature, capital-intensive sector that has attracted more than US$5 billion in investment under the last two policy cycles, the AIDP (2016–21) and the AIDEP (2021–26).

That investment tells a story of genuine commitment. Roughly US$1.5 billion came from 16 new entrants, including KIA, Hyundai, Peugeot and Great Wall, with BYD set to follow.

Another US$1 billion went into modernising and localising existing plants, while some US$2 billion was committed by around 300 auto parts vendors building local manufacturing capability. Behind these numbers sit 2.5 million lives spread across the automotive value chain, from assembly lines to the small workshops that supply them.

The sector also pays its way. The auto industry contributes about 4 percent of total national tax revenue, ranking second in customs duties, third in sales tax and fourth in federal excise collection.

Depending on engine size, taxes make up between 45 and 60 percent of a vehicle’s retail price. Few industries carry a comparable fiscal load while employing so many.

And yet this engine is running at half throttle. Against an installed capacity of 600,000 units, the industry operates at only around 50 percent. The reason is not a lack of capability but a chronic lack of policy stability. Over the past decade, two auto policies have been punctuated by an average of 10 to 15 mid-course changes, each one rattling investor confidence and suppressing demand.

Production has crossed 300,000 units only once in each policy period and has more often languished below 200,000. Manufacturers cannot plan localisation, vendors cannot justify new lines, and consumers cannot count on stable prices when the rules shift every few months.

This is where used car imports do their quiet damage. Imported second-hand vehicles account for a substantial share of Pakistan’s market, in some years as high as 24 percent.

Compare that with Thailand at 1.2 percent, Vietnam at 0.3 percent, and India at zero. These countries did not arrive at those figures by accident. They deliberately protect their domestic industries, maintaining CBU import duties of 125 percent in India, 80 percent in Thailand and 52 percent in Vietnam.

Every used car landed in Pakistan is a locally manufacturable vehicle that was not built here, a job that was not created here, and value that leaked out of the economy.

The good news is that the path forward is well mapped. The single most important commitment the new policy can make is stability.

A predictable framework, and free of demand-suppressing administrative interventions would let manufacturers and vendors invest with confidence. To reward local value addition, the policy should maintain a duty differential of up to 40 percent between completely built-up imports and locally assembled kits, and up to 25 percent between raw materials and finished parts.

Crucially, these principles must be reconciled with the National Tariff Policy (2025–30), which targets a 15 percent peak customs duty; tariff rationalisation and manufacturing protection need not be at odds if the phase-out is sequenced to give local industry time to deepen localisation rather than expose it overnight.

Volume is the other half of the equation. If production can be sustained at 350,000-plus units for a full policy cycle, the supply chain gains the scale it needs to push beyond 500,000 units, driving down costs and prices alike. Reviving vehicle financing would help get there.

Raising the financing limit from a fixed PKR 3 million to 70 percent of a vehicle’s value, and extending tenure from three years to seven, would put new locally made cars within reach of far more households.

Finally, used car imports must be curtailed. Rather than incentivising the purchase of aging foreign vehicles, the state should offer tax incentives to overseas Pakistanis to buy locally manufactured cars, channelling their considerable purchasing power into domestic jobs and factories.

Pakistan has already built the industry. It has the brands, the plants, the vendors and the workforce. What it has lacked is the resolve to let them run at full capacity.

The forthcoming auto policy is a chance to supply that resolve, to choose the factory over the import lot, and to back the 2.5 million Pakistanis whose livelihoods depend on getting this right.

Copyright Business Recorder, 2026