ISLAMABAD: Pakistan’s government said this week its long-delayed five-year auto policy is in its final stages of approval, but manufacturers warn that proposed cuts to import tariffs remain the biggest unresolved issue, arguing they could undermine domestic production unless broader structural reforms are introduced first.
The Auto Industry Development Policy (AIDEP) 2026-31 will replace Pakistan’s previous auto policy, which expired on June 30. The new framework is expected to guide the country’s automotive sector over the next five years, alongside the government’s broader National Tariff Policy, as Islamabad seeks to encourage manufacturing, promote electric vehicles, improve consumer affordability and gradually liberalize trade.
However, the government has not released the draft policy or disclosed its final provisions, making it unclear how it will balance those competing objectives. Officials say consultations with industry are continuing, while manufacturers say key disagreements remain unresolved.
The new draft has passed through one of two cabinet-level committees reviewing the policy before final approval, according to officials. One committee, headed by Power Minister Awais Leghari, is working to build consensus among stakeholders, while a second, chaired by Deputy Prime Minister Ishaq Dar, is tasked with resolving outstanding disagreements before the policy is finalized.
“The draft was prepared after numerous meetings with the auto sector. The Dar committee had approved the draft. Now it is going through the final steps before being rolled out,” Haroon Akhtar Khan, minister of state and special assistant to the prime minister on industries and production, told Arab News, rejecting reports that an earlier draft had been withdrawn following industry backlash.
Responding to questions about the policy’s contents, Akhtar Khan said only that it would be “a forward-looking policy to make Pakistan a competitive manufacturing hub for Autos and Auto parts manufacturers.” He declined to share a draft.
The main disagreement centers on tariffs.
Pakistan’s government wants to gradually reduce import duties as part of its wider tariff reform program, which aims to lower trade barriers across thousands of products over the coming years. Auto parts manufacturers, however, say reducing tariffs before addressing Pakistan’s high production costs would leave local companies unable to compete with cheaper imports.
Shehryar Qadir, senior vice chairman of the Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM), said tariffs were the “main point of contention.”
“They are saying to bring tariffs down to 15 percent by 2031, whereas we are saying that reaching 15 percent is impossible until you address this 34 percent disadvantage. If you drop it to 15 percent without correcting that 34 percent cost disadvantage, the industry will collapse,” Qadir said.
According to PAAPAM, Pakistan’s auto parts industry faces an estimated 34 percent cost disadvantage compared with regional competitors because manufacturers rely almost entirely on imported raw materials while also paying higher energy costs, taxes and borrowing costs.
“First, none of our raw materials are produced in Pakistan. All raw materials are imported, be it auto-grade steel, plastic resin, or rubber,” Qadir said, noting that neighboring countries manufacture many of these inputs domestically.
“The second item is our energy cost, which is almost double compared to the region. Third is taxation, which is considerably higher than in the rest of the region. Fourth is interest rates, which are also considerably higher than in the rest of the region. And lastly, the main factor is our volumes.”
He said frequent policy changes also prevent manufacturers from achieving the production volumes needed to lower costs.
“Whenever the market starts growing, the government contracts it and pulls it back through one means or another. So, when there are no volumes, how can you gain economies of scale in manufacturing? These are the main reasons for this cost disadvantage,” Qadir added.
“BACK AND FORTH”
The government says the policy is still being refined to reconcile industrial and consumer interests.
“There are two committees working on ensuring that the way forward reflects what is best for the mobility of ordinary Pakistanis, over and above all other considerations,” Prime Minister’s spokesperson for foreign media, Mosharraf Zaidi, told Arab News.
“Given the unique place of the automotive sector in industrial policy, a range of other policy considerations need to be reflected along with consumer interests — industry and manufacturing, emissions and carbon footprints, electrification and the adoption of EVs, urban congestion, and wider tariff policy and its interplay with the trade balance.”
Zaidi said one committee, led by the power minister, was working to build consensus among stakeholders, while another chaired by Dar was seeking to resolve the remaining disagreements.
Despite those assurances, manufacturers say they have not been informed that the policy has received final approval and warn the uncertainty is already delaying investment.
“We haven’t received any communication stating that the policy has been approved by Mr. Dar’s committee. Rather, it’s still going back and forth,” Qadir said, adding that industry representatives had been told Prime Minister Shehbaz Sharif would chair a meeting on the policy next Friday.
“Investment decisions, capacity planning, and technology upgradation across the vendor industry remain stalled in the absence of policy clarity,” he said, urging the government to finalize the framework quickly because “continued ambiguity is eroding investor confidence.”
Qadir also argued that Pakistan’s previous two auto policies largely benefited vehicle assemblers rather than domestic component manufacturers.
“The incentive structures under these policies primarily benefited assembly operations, resulting in a proliferation of assembly plants rather than genuine industrial deepening,” he said.
“The vendor sector, which accounts for approximately 80 percent of total employment generated by the auto industry, received little to no meaningful support under these frameworks.”
He said the new policy should prioritize localization, strengthen domestic suppliers, encourage technology transfer and help manufacturers achieve economies of scale.
Analysts have also questioned recent tax incentives for electric vehicles, saying they disproportionately benefit wealthier consumers.
“Vehicles such as Alto and Cultus serve as basic mobility options for middle-income families yet receive no meaningful tax relief. In contrast, buyers who can afford vehicles worth Rs10 million or more benefit from concessions introduced to encourage new energy vehicle adoption,” said Yousuf M. Farooq, director research at Chase Securities.
“While promoting cleaner transportation is an important policy objective, incentives should not disproportionately benefit rich consumers.”
