Govt Unveils Auto Policy 2026–31: Tariff Rationalization, Hybrid Relief, and Proposed Environmental Levy

ISLAMABAD: Prime Minister Shehbaz Sharif has given in-principle approval to Pakistan’s new Auto Policy (2026–31). The proposed framework has been shared with the International Monetary Fund (IMF) for review before its formal presentation to the Economic Coordination Committee (ECC), the Federal Cabinet, and subsequently Parliament.

The core objective of the five-year policy is to create a competitive and investment-friendly ecosystem for the domestic automotive industry. Key priorities include accelerating localized manufacturing, expanding vehicle exports, and promoting high-efficiency automotive technologies.

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PM Shehbaz Approves Five-Year Auto Draft Featuring New Environmental Levy and Import Tax Relief

Key Proposed Measures

• Phased Tax Relief on Hybrid Passenger Vehicles: The draft proposes a overall 20% reduction in taxes on imported hybrid vehicles over the next five years. For hybrid cars with engine capacities up to 800cc and between 851cc and 1,000cc, customs duties are slated to drop from 50% to 30%.
• Duty Cuts for Hybrid Commercial Vehicles: To modernize public transit and logistics, the proposal cuts customs duties on hybrid commercial vehicles from 60% to 30%, while duties on hybrid trucks and hybrid buses will be halved from 30% to 15%.
• Targeted Environmental Levy on High-Displacement Vehicles: To support export initiatives and R&D funding without straining fiscal resources, an environmental levy will be introduced on larger vehicles. Vehicles with engine capacities from 2,001cc to 3,000cc will incur a 10% levy, while those 3,001cc and above will face a 19.5% levy.
• Rs 142.79 Billion Revenue Projection: The government estimates that the proposed environmental levy will generate approximately Rs 142.79 billion over the five-year policy period to fund sector-specific development programs.

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