For decades, Pakistan's auto industry has been built behind high tariff walls. Vehicle imports carried heavy duties, local assemblers were protected, and a network of local parts vendors grew up to supply them.
That model is changing. As part of the tariff rationalisation commitments linked to Pakistan's IMF programme, the government has been working on a new Auto and Auto Parts Manufacturing Policy that would gradually reduce tariffs on imported vehicles and open the market further toward the end of the decade. Through 2026 the drafts have moved: reporting in the spring described a cap on customs duties for completely built vehicles and a phased reduction in average tariffs to 2030, and a draft circulated in September 2026 proposed larger cuts, higher financing limits for electric vehicles, and relief on imported parts used to make exports.
As of October 2026, the policy has not been finalised, and the details are still being negotiated. The direction is clear, though. Businesses that plan for more competition now will be in a much better position than those that wait for the gazette notification.
The short version
- The policy is a draft. Do not price your business on specific tariff numbers until they are notified. Do plan for lower protection over time.
- Local parts vendors face the biggest change. Lower protection for assemblers means pressure on local content. Exports, quality and efficiency become the route to survival.
- Dealers and importers may gain, but the used-car import market and its rules matter as much as tariffs on new vehicles.
- Fleet owners should time big purchases carefully and watch EV financing changes.
- Watch the duty relief on parts used for exports. If it survives, it could make export manufacturing much more viable.
What is the policy trying to do?
Three goals, roughly:
- Reduce protection so that consumers pay less and local manufacturers become more efficient and competitive.
- Encourage exports of vehicles and parts, rather than relying on a protected domestic market.
- Support the shift to electric and hybrid vehicles through financing and duty measures.
The Engineering Development Board and the Ministry of Industries and Production lead the policy work, and the Federal Board of Revenue publishes the duty rates once they are set. Those are the sources to watch.
Who is affected, and how?
| Business | Likely impact | What to do now |
|---|---|---|
| Local parts vendor | Pressure on volume and price as assemblers face import competition | Benchmark costs against imports, improve quality certification, explore exports |
| Assembler | More competition from imported vehicles | Localise efficiently, focus on models where local production is competitive |
| Car dealer | More models available, potentially lower prices; margin pressure from competition | Diversify brands, build after-sales and financing services |
| Used-car importer | Depends heavily on the used-vehicle import rules | Follow the rules on vehicle age and duties closely |
| Fleet owner | Lower vehicle costs possible over time | Time large purchases; evaluate EV and hybrid options |
| Leasing and finance company | Changes in vehicle prices affect residual values | Review residual value assumptions |
What should parts vendors do?
This is the group with the most to lose and the most to do.
1. Know your cost against imports. For your main products, what would an equivalent imported part cost, delivered, at lower tariffs? If the gap is small or negative, you need a plan.
2. Raise quality to export standard. International quality certifications, such as IATF 16949 for automotive parts, are expensive but open export markets and make you more valuable to local assemblers who face tougher competition.
3. Look at exports seriously. If the proposed duty relief on imported inputs for export production survives, export manufacturing becomes more competitive. Our guide to exporting from Pakistan covers the registrations and documentation.
4. Get your costs and systems in order. More competition means margins are thinner. Many vendors still run on spreadsheets and cannot see their true product costs. See our guide to ERP for Pakistani manufacturers.
5. Diversify customers. Dependence on one or two assemblers is a bigger risk when those assemblers are under pressure.
What should fleet owners do?
If you run a delivery fleet, a ride-hailing operation, a logistics company or a company car pool:
- Do not rush large purchases if prices may fall, but do not delay replacements you genuinely need. Ageing vehicles cost more in fuel and maintenance than you might think.
- Look at EVs and hybrids. The proposed higher financing limits for EVs could change the economics, and fuel prices remain high. Our EV fleet total cost guide shows how to model it.
- Watch resale values. Lower prices for new vehicles can push down the value of your existing fleet.
Frequently asked questions
When will the new tariffs take effect?
Not until the policy is finalised and the duty rates are notified, usually through the budget or a statutory regulatory order. Watch the FBR and the Ministry of Industries and Production.
Will car prices fall?
Over time, lower tariffs should push prices down, but exchange rates, taxes and global prices also matter. Do not expect a sudden drop.
Will local manufacturing disappear?
No. Lower protection usually means consolidation and specialisation, not disappearance. Efficient, quality-focused manufacturers can grow, especially through exports.
What is the single most common mistake?
Waiting for the final policy before benchmarking costs against imports. The benchmarking takes months; start now.
Where to go next
If you are a manufacturer or fleet operator working out what this means for your costs and plans, that is our business operations consulting. See also our automotive and manufacturing notes, or talk to us.
