Auto Policy • Pakistan

PM Shehbaz Has Approved a Five-Year Automobile Policy With Major Tax Cuts on Electric Vehicles. Here Is What Buyers Will Actually Get

By Life in Pakistan Editorial

11 September 2026

Prime Minister Shehbaz Sharif has approved a draft five-year automobile policy that proposes substantial tax cuts on new vehicles, with the steepest cuts reserved for electric and new-energy vehicles. The draft, which has been shared with the International Monetary Fund (IMF) ahead of the next economic review, proposes to phase down the customs duty on conventional cars by up to 80 per cent over the next five years, to abolish the federal excise duty, capital value tax, and withholding tax on electric vehicles, and to raise the loan ceiling for electric-vehicle buyers to Rs 1 crore and the loan tenure to five years. The draft is also designed to protect existing assemblers from a sudden shock by phasing the cuts in gradually. The final policy is expected to be notified after the IMF consultation.

What is in the draft

The draft five-year automobile policy, approved by the prime minister this week and shared with the IMF, has three core components:

First, the customs duty on conventional cars would be phased down by up to 80 per cent over the next five years. The cuts would be gradual, not a single step, to protect the existing assemblers from a sudden shock. The phasing is intended to give local assemblers time to invest in new-energy lines without losing the cash flow from existing models.

Second, three federal taxes on electric vehicles would be abolished. The federal excise duty, the capital value tax, and the withholding tax on the purchase of an electric vehicle would all be set to zero under the draft. The combined effect of these three abolitions is a meaningful reduction in the on-road price of an electric car, particularly for the mid-range models that dominate the Pakistani market.

Third, the financing terms for electric vehicles would be improved. The loan ceiling for EV buyers would be raised from Rs 30 lakh to Rs 1 crore, and the loan tenure would be extended from three years to five years. The combined effect is that monthly payments on an EV would fall sharply, bringing more Pakistani buyers into the qualifying range.

What buyers will actually get

The practical effect of the draft policy, if implemented as proposed, is meaningful price relief across the new-car market.

For electric-vehicle buyers

The three tax abolitions (federal excise duty, capital value tax, withholding tax) plus the increased loan ceiling and tenure combine to reduce the total cost of ownership of a typical mid-range electric car in Pakistan by an estimated 20-30 per cent. The biggest impact is on the cash purchase price, which falls by roughly the combined value of the three taxes. The longer loan tenure reduces the monthly payment by roughly 30 per cent compared to a three-year loan at the same interest rate.

For conventional-car buyers

The phased customs-duty cut on conventional cars is gradual, not immediate. Buyers in the first year would see a modest reduction in the on-road price of imported and assembled cars. Buyers in the fifth year would see the bulk of the benefit, with the customs duty on most segments phased down by up to 80 per cent from current levels.

For existing assemblers

The phasing is designed to protect existing local assemblers from a sudden shock. The current assemblers — Indus Motor, Pak Suzuki, Honda Atlas, Hyundai Nishat, Kia Lucky, MG JW-SEZ, Proton, Changan, BAIC, and others — would continue to operate their existing lines, but with a gradually falling customs duty on imported vehicles. The expectation is that assemblers will invest in new-energy lines over the five-year window, with the policy effectively forcing a managed transition.

The booking and delivery reform

The draft also includes a consumer-protection reform on the booking and delivery process. Under the proposed rules, if a manufacturer increases the price of a vehicle after a buyer has placed a booking, the manufacturer would be liable for the difference. The manufacturer would also be required to disclose the expected delivery date at the time of booking, and the buyer would have a defined remedy if the delivery is delayed beyond the disclosed date.

This reform is a direct response to a long-running consumer complaint about price increases between booking and delivery in the Pakistani new-car market. The reform has been discussed in the auto industry for several years and is now in the draft policy.

The IMF consultation

The draft has been shared with the IMF ahead of the next economic review. The IMF is broadly supportive of tax reforms that broaden the tax base and reduce the cost of doing business, and the abolition of the federal excise duty, capital value tax, and withholding tax on EVs would be consistent with that direction. The IMF’s view on the phased customs-duty cut on conventional cars is more nuanced: the IMF has historically argued for faster tariff reduction, while the local auto industry has argued for slower reduction. The five-year phasing is a compromise.

The final policy is expected to be notified after the IMF consultation concludes. The notification would set out the specific phase-down schedule for each segment, the implementation dates for the tax abolitions on EVs, and the implementation dates for the consumer-protection reforms.

What the next step looks like

The next step is the IMF consultation, expected in October. The consultation will produce a formal Article IV report, which would typically include the IMF’s view on the automobile policy as part of the broader economic policy package. After the consultation, the federal cabinet would formally approve the policy and notify it through the Federal Board of Revenue (FBR) and the Ministry of Industries and Production.

For buyers, the practical question is the timing. If the policy is notified before the end of 2026, the first phase of customs-duty cuts would take effect in early 2027. If the policy slips into 2027, the first phase would take effect in mid-2027. The three EV tax abolitions could take effect sooner, possibly within 60 days of notification, depending on how the FBR implements them.

The bottom line

The federal government has approved a draft five-year automobile policy that proposes to phase down the customs duty on conventional cars by up to 80 per cent, to abolish three federal taxes on electric vehicles, and to raise the EV loan ceiling to Rs 1 crore with a five-year tenure. The draft also includes a consumer-protection reform that would hold manufacturers liable for price increases after booking. The final policy is expected to be notified after the IMF consultation in October. The practical impact for buyers is meaningful price relief across the new-car market, with the biggest gains on electric vehicles in the first year.