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Auto Policy 2026-31 Cleared by IMF, Approved by PMBusiness
The new auto policy targets $6.01 billion in exports and $17.7 billion in foreign exchange savings, but it still needs cabinet approval and passage through Parliament before it becomes law.
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Prime Minister Shehbaz Sharif has approved the Autos and Auto Parts Manufacturing Policy 2026-31 after the International Monetary Fund (IMF) raised no objection to the draft, according to sources quoted in media reports. The policy is not yet law: it still requires approval by the federal cabinet, after which the government plans to take it to Parliament as a money bill, effectively a mini-budget.
The policy replaces the previous auto policy, the Automotive Industry Development and Export Policy (AIDEP) 2021-26, which expired on 30 June 2026. The framework was announced at a joint press conference in Islamabad on 7 November by Information Minister Attaullah Tarar and Adviser on Industries Haroon Akhtar Khan.
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The policy sets ambitious targets for the five-year period. Cumulative automotive exports of about $6.01 billion are targeted by 2030-31, with parts makers contributing $3.29 billion, or 55 per cent, and assemblers $2.72 billion. It also aims for about $17.7 billion in cumulative foreign exchange savings and a cut in oil imports of about 1.823 million tonnes.
Manufacturers will face binding export obligations. Those missing their export targets face penalties of 1 to 3 per cent of annual factory-gate sales, and two consecutive years of failure could cost them their manufacturing certificates, except in cases of force majeure. A drawback scheme will offer exporters 5 per cent of net free-on-board export value, plus 10 per cent on qualifying incremental exports.
Localisation is central to the policy. Existing manufacturers must raise domestic value addition by 2 per cent a year — 8 per cent over the period. By 2030-31, minimum localisation targets are 40 per cent for petrol and diesel cars and SUVs, 45 per cent for light commercial vehicles, 80 per cent for tractors and 90 per cent for motorcycles and rickshaws. For new energy vehicles, the targets are 25 per cent for cars and SUVs and 30 per cent for two- and three-wheelers. Missing the targets could add 3 percentage points of customs duty on non-localised CKD imports the following year.
Electric vehicles receive a targeted incentive. Battery electric vehicles priced up to $15,000 will qualify for 5 per cent customs duty for the first two years, but only if the importer sets up local assembly or manufacturing. A surety bond and an irrevocable bank guarantee will be required, and commercial production of the imported model must begin by 30 September 2028, failing which the guarantees will be encashed.
Other measures include contract manufacturing to use idle plant capacity, estimated at 41 to 80 per cent, a Rs2.1 billion Vendor Upgradation and Technology Transfer Programme run by the Engineering Development Board and SMEDA, and a target of at least five anchor firms investing in the sector. A mid-term review is planned for 2028. Makers that do not sign performance agreements with the Engineering Development Board will not qualify for concessional tariffs on imported parts.
The policy comes as the industry recovers. Passenger car sales rose 39 per cent to about 156,000 units in fiscal year 2025-26, while motorcycle and rickshaw sales rose 30 per cent to nearly 1.97 million, according to Pakistan Automotive Manufacturers Association data. The IMF raising no objection is not a formal IMF approval, and the policy text has not been published; some details here come from reporting on the draft.
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