The federal government has withdrawn its draft auto policy and formed a new committee to redraft it, after local carmakers raised objections over what they called unequal treatment favouring electric vehicles.
Deputy Prime Minister Ishaq Dar has been tasked by Prime Minister Shehbaz Sharif to prepare the revised draft.
The Ministry of Industries and Production had originally prepared the policy after consultations with stakeholders, with a primary focus on promoting electric vehicles amid the backdrop of the US-Iran war.
The move reflected a broader push to shift Pakistan away from petrol and diesel vehicles, given that the country imports around 80 percent of the petroleum products it consumes.
Local carmakers, however, approached the prime minister to seek a review of the draft, leading to its withdrawal and the formation of a new committee to prepare an alternative version.
The delay has already had financial consequences for the industry. The Auto Industry Development and Export Policy 2021-26 expired on June 30, 2026, triggering the automatic restoration of a 25 percent general sales tax (GST) by the Federal Board of Revenue.
The change has primarily affected locally assembled and imported hybrid vehicles, which previously benefited from a reduced GST rate of 8.5 percent. Since the new Auto Policy 2026-31 was not notified in time, that concession lapsed.
From July 1, 2026, GST on hybrid electric vehicles and plug-in hybrids reverted to 25 percent, aligning them with the rate already applied to conventional petrol and diesel cars.
As a result, Toyota and Honda raised hybrid vehicle prices by more than Rs1.3 million in some cases, while other manufacturers suspended invoicing and deliveries amid the uncertainty.
The Pakistan Association of Automotive Parts & Accessories Manufacturers (Paapam) has expressed concern over the delay and is calling for a balanced tax structure, including an 18 percent GST on hybrids, until the charging network and EV parts industry are more developed.
Paapam has clarified that its objection is not to the introduction of EVs but to the disparity in treatment between EVs and conventional vehicles. The association supports a gradual transition to electric vehicles, with an emphasis on local manufacturing and technology transfer.
It has proposed linking EV incentives to annual increases in localisation, along with local production of batteries, motors and electronic components.
The association has also sought support for existing parts manufacturers to convert their operations, equal opportunities for current manufacturers to introduce EVs and hybrids, and protection for companies primarily engaged in component imports and basic assembly.
Paapam warned that the proposed Auto Policy 2026-31, as drafted, offers substantial advantages to EVs without a clear transition plan for conventional carmakers and parts manufacturers.
It cautioned that unchecked EV concessions could displace local manufacturing in favour of imported EV kits, jeopardising existing investments and employment in the sector.
