Pakistan’s auto policy: what we know so far

Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan said the Autos and Auto Parts Manufacturing Policy 2026–2031 represented a major shift in Pakistan’s automotive sector, moving away from import-dependent assembly towards export-oriented manufacturing, greater localisation, and internationally competitive domestic production.

He said the policy reflected Prime Minister Shehbaz Sharif’s vision of an export-led, self-reliant and competitive economy, with a strong emphasis on empowering local manufacturers, strengthening domestic auto parts production, creating employment opportunities and integrating Pakistani industry into global automotive supply chains.

Last week, PM Shehbaz approved the final draft of Pakistan’s Automotive Industry Policy, paving the way for its submission to the Federal Cabinet for consideration and formal approval.

Here is what we know so far about the proposed framework and its potential implications for Pakistan’s automotive industry.

Key takeaways:

• $6 billion export target set for 2026–2031
• $17.7 billion in foreign exchange savings projected through localisation and domestic manufacturing
• localisation to become mandatory; domestic manufacturing to take ‘centre stage’
• Auto parts industry to contribute 55% in $6 billion export target
• 2,200 local auto parts manufacturers to receive dedicated support; Rs2.1 billion vendor upgrade programme
• Idle industrial capacity to be utilised; new investment and employment opportunities
• Import concessions linked to local manufacturing and export commitments

Localisation to become mandatory

The adviser said the new policy introduced binding localisation requirements to ensure progressive growth in domestic value addition.

He said the binding requirements would ensure that the expansion of the automotive market translates into greater domestic industrial activity, investment, employment and technological development.

Non-compliance with applicable minimum domestic value addition requirements will attract an additional three percentage points of customs duty on relevant non-localised completely knocked down (CKD) imports in the subsequent financial year, subject to the prescribed legal process, according to a statement from the Ministry of Industries and Production.

Vendor upgrade programme

Highlighting the importance of the domestic vendor industry, Haroon Akhtar Khan said Pakistan had approximately 2,200 auto parts manufacturers whose capacity, technological advancement, and integration into international supply chains were essential for the sector’s long-term competitiveness.

He said a dedicated Vendor Upgradation and Technology Transfer Programme (VUTTP), with an allocation of Rs2.1 billion, will be implemented through the Engineering Development Board (EDB) and Small and Medium Enterprises Development Authority (SMEDA).

The programme will facilitate technological upgrade, access to common manufacturing facilities, skills development, international quality certification, and export readiness for domestic vendors.

The policy also targets investment in at least five anchor auto parts manufacturing firms during its implementation period to support the development of domestic manufacturing clusters.

He said empowering domestic manufacturers and strengthening local vendor networks would be central to the government’s strategy for building a competitive automotive industry.

$6 billion export target; auto parts industry to contribute 55%

The adviser said export promotion was one of the defining features of the new policy, which establishes cumulative export targets of approximately $6 billion during 2026–2031.

Of this amount, approximately $3.29 billion, representing 55%, is targeted from auto parts manufacturers, while automobile manufacturers are expected to contribute approximately $2.72 billion, or 45%.

He said the distribution reflected the government’s strategic emphasis on developing the auto parts industry and transforming domestic suppliers into internationally competitive manufacturers.

To encourage exporters, the policy introduces a drawback of Local Taxes and Levies (DLTL) scheme, providing eligible exporters with 5% support on net Free on Board (FOB) export value, along with an additional 10% incentive on qualifying incremental exports.

Furthermore, manufacturers will be required to secure export opportunities within the global supply chains of their international principals.

The adviser said the measures would encourage manufacturers to move beyond dependence on the domestic market and develop a sustainable export-oriented business model.

Import concessions linked to local manufacturing and export commitments

Haroon Akhtar Khan said the government was rationalising customs duties progressively over five years while ensuring that import concessions were directly linked to domestic manufacturing, localisation and export performance.

He explained that the concessional 5% customs duty on imported battery electric vehicles (BEVs) valued up to $15,000 during the initial two years was conditional upon the establishment of domestic assembly or manufacturing facilities.

Companies seeking the concession will be required to submit a surety bond and an irrevocable bank guarantee covering the customs-duty differential. They must also commence commercial production of the imported BEV variant by September 30, 2028.

$17.7 billion foreign exchange savings projected through localisation

The adviser said the policy was expected to generate cumulative foreign exchange savings of approximately $17.7 billion during 2026–2031, compared with the foreign exchange required to import equivalent automobiles in completely built-up (CBU) condition.

He said increased domestic value addition, local manufacturing and export growth would help reduce pressure on the country’s external account while strengthening industrial self-reliance.

The policy also projects that increased adoption of new energy vehicles will help avoid imports of approximately 1.823 million tonnes of oil during the policy period, contributing to reduced petroleum import dependence and improved energy security.

Idle industrial capacity to be utilised; new investment and employment opportunities

Haroon Akhtar Khan said the policy also provided for contract manufacturing arrangements to make better use of Pakistan’s existing industrial capacity, which currently has estimated idle capacity ranging from 41% to 80%.

He said utilising available capacity would improve production efficiency, encourage investment, create employment opportunities, and strengthen the overall industrial ecosystem.

The adviser said the Autos and Auto Parts Manufacturing Policy 2026–2031 was fundamentally a manufacturing-led and export-oriented framework, designed to strengthen Pakistan’s domestic industrial base rather than perpetuate dependence on imported vehicles and components.

He said that the ultimate objective was to transform the automotive sector into a driver of export-led economic growth, foreign exchange generation, industrial development and sustainable employment.