IMF to review new auto policy as Pakistan targets tariff cuts to 6% by 2030

Pakistan will share its new auto sector policy with the International Monetary Fund (IMF) by the end of April for review before approval by the federal cabinet, as part of commitments to reduce tariffs and open the sector to competition, according to media reports.

The Automobiles and Auto Parts Manufacturing Policy 2026-31 will form part of reforms under the International Monetary Fund’s $7 billion Extended Fund Facility, with both sides agreeing to reduce the weighted average tariff on vehicle imports from 10.6% to 7.4% by 2030. 

The tariff is expected to decline to 9.5% in the upcoming FY2026-27 budget, scheduled for June 1, 2026.

The policy aims to align tariffs with the National Tariff Policy by bringing the net weighted average to around 6%, with officials indicating it could reach 5.99% by the end of the decade.

The government has committed not to introduce new regulatory duties on imports, while existing additional customs duties and regulatory duties will be phased out gradually.

The draft policy will be submitted to the International Monetary Fund by April 30, ahead of cabinet approval, reflecting the lender’s role in overseeing trade liberalisation measures.

Expected to take effect from July 1, 2026, the policy will introduce a revised tariff structure with slabs of 0%, 5%, 10% and 15%, while customs duties on finished vehicles will be capped at 15% over the next five years.

Duties on auto parts may be reduced by up to half over five years, while tariffs on completely built units could be cut by 15% to 20% for vehicles with engine capacity above 1,000cc.

A 40% regulatory duty on used vehicle imports for FY2026 is expected to be gradually reduced to zero, while the government has already tightened rules on gift and baggage schemes to curb misuse.

The government has also legalised commercial imports of vehicles, although legislation to regulate such imports through authorised companies remains pending parliamentary approval.

Officials said the new framework would follow a performance-based model, linking incentives to domestic value addition, export growth and adoption of advanced automotive technologies. The policy aims to increase exports from around $300 million to $3 billion and raise annual vehicle production to more than 500,000 units within five years.

The auto sector currently operates with annual sales of 150,000 to 180,000 units against an installed capacity of around 500,000 units, while used vehicle imports account for roughly one-fourth of the domestic market.

The policy will also align with the New Energy Vehicle Policy 2025-30, offering incentives for electric vehicle production and components, including reduced customs duties and tax concessions for non-localised parts.

Localisation remains limited, with average localisation in passenger cars estimated at around 58%, compared to higher levels in regional markets, highlighting structural gaps in domestic manufacturing.

Separately, The News reported that the Motor Vehicle Development Act has been submitted to parliament and is expected to be approved by the National Assembly before the end of June 2026, providing a legal framework for environmental and safety standards.

Officials said stakeholder consultations on the policy have been completed and it will be presented to the prime minister and federal cabinet before final approval, with the broader objective of reducing trade barriers, improving competitiveness and integrating the sector into global markets.