Pakistan is preparing to introduce a new five-year auto sector policy that will gradually reduce tariffs on vehicle imports under commitments made to the International Monetary Fund as part of the country’s $7 billion bailout program.
Under the proposed framework, the weighted average tariff on vehicle imports will be reduced from 10.6% to 7.4% by 2030, officials familiar with the matter said. The first reduction is expected in the 2026-27 federal budget, where the average tariff is likely to be brought down to 9.5%.
The planned reforms form part of Pakistan’s obligations under the IMF’s Extended Fund Facility, which requires lower trade barriers and a simpler tariff structure. Officials said the government has also agreed not to impose any new regulatory duty on imports.
A new auto policy is expected to come into effect from July 1, 2026. The policy is currently being finalized and is scheduled to be shared with the IMF by the end of the month before being sent to the prime minister and the federal cabinet for approval.
As part of the new framework, the existing tariff structure for the auto sector is expected to be replaced with a four-tier system of 0%, 5%, 10% and 15%. Customs duty on completely built-up vehicles is likely to be capped at 15% over the next five years.
Officials said the policy aims to encourage local manufacturing, increase the use of locally made parts and help lower vehicle prices, while also aligning the sector with broader tariff reforms agreed with the IMF. By fiscal year 2030, the weighted average tariff for the auto sector is expected to fall to about 6%.
Pakistan has also agreed with the IMF to gradually eliminate additional customs duties and regulatory duties in the sector by 2030. A 40% regulatory duty currently applicable to used vehicle imports in fiscal year 2026 is expected to be phased down and eventually reduced to zero.
Adviser to the prime minister on industries Haroon Akhtar Khan said the policy was at an advanced stage and would be presented to the prime minister and cabinet before its formal announcement. He said consultations had been held with stakeholders and the government would try to strike a balance where differences remained.
The government is also working on regulatory changes alongside the tariff overhaul. Officials said the Motor Vehicle Development Act, which would provide the Engineering Development Board with a legal basis to enforce environmental and safety standards, has already been submitted to parliament and is expected to be passed before the end of June.
In addition, the government has abolished the personal baggage scheme for vehicle imports and tightened rules for the gift and transfer-of-residence schemes for used cars in an effort to prevent misuse after commercial imports were legalized.
The proposed policy would mark a major shift for Pakistan’s auto industry, which has traditionally been protected by high import barriers. If implemented, it is expected to increase competition in the market and put pressure on local assemblers to improve pricing and efficiency.
