The federal government is poised to announce significant changes to Pakistan’s automobile import policy in the national budget for the fiscal year 2025-26, set to be unveiled on June 2. The proposed reforms aim to make imported vehicles, particularly new models, more affordable for consumers.
The anticipated policy shift comes amidst sustained pressure from the International Monetary Fund (IMF), which has advocated for reducing import-related taxes, especially within the automotive sector. This is part of the IMF’s broader push for greater market openness and enhanced competition.
According to senior officials within the Federal Board of Revenue (FBR), the IMF has urged the government to reconsider the high tariffs currently levied on vehicle imports and to liberalize the commercial import framework. The international lender believes these steps will not only foster transparency but also help curb practices like over-invoicing and the misuse of gift schemes often associated with the import of used cars.
Proposals Under Consideration
Sources within the FBR have indicated that multiple proposals are under review to restructure customs duties on imported vehicles. A prominent proposal involves reducing import duty rates by 5 to 30 percent on brand-new vehicles within specific engine capacity categories:
- Small vehicles up to 850cc
- Mid-sized and larger vehicles up to 1801cc
Currently, import duties on vehicles range significantly, from 50 to 100 percent, based on engine size and category. If approved, these proposed reductions would represent the most substantial cuts in recent years, potentially transforming Pakistan’s auto market, which has historically been shielded by high protective tariffs benefiting a few local assemblers.
However, the same relief may not extend to used imported vehicles. Sources clarified that the government is considering maintaining relatively high customs duties on used cars to discourage the grey market and offer some protection to domestic manufacturers.
Easing Restrictions on Older Used Vehicles
In a related move aimed at expanding consumer choices, the FBR is also reportedly considering a proposal to allow the import of used vehicles up to five years old, an increase from the current three-year limit. Officials added that a phased approach to eventually permit the import of vehicles up to 10 years old is also under deliberation. This potential relaxation of age limits could provide consumers with more accessible options in the second-hand market.
These proposals are part of a wider strategy to address the surge in vehicle prices witnessed in recent years, attributed to high taxes, currency depreciation, and strict import restrictions.
Push for Electric Vehicles
The upcoming budget is also expected to reinforce the government’s commitment to promoting Electric Vehicles (EVs), aligning with the 2019 National Electric Vehicle Policy. This could involve potential tax exemptions and incentives aimed at encouraging the import and local assembly of EVs and their components. Both the Energy Ministry and the Ministry of Industries are reported to support this initiative, seeing it as a crucial step towards reducing reliance on fossil fuels and mitigating air pollution in major urban centers.
Balancing Local Industry and Consumer Interests
While the proposed changes are likely to be welcomed by consumers, they may face opposition from local automobile assemblers who have long benefited from protectionist policies. Industry groups are anticipated to lobby against significant duty reductions, citing concerns about potential negative impacts on local production and employment.
Conversely, economists and consumer rights advocates argue that increased competition from imports is necessary to improve the quality of vehicles available in Pakistan and bring down prices in a market often characterized by limited options and delivery delays.
A senior official involved in the budget preparation process commented, “The auto sector’s taxation is under review. The IMF’s suggestions align with our broader reform objectives – to curb anti-competitive practices and open up the economy. We are exploring options that balance protecting domestic industry with providing relief to the public.”
The official added that final decisions would be made closer to the budget presentation date following consultations with stakeholders from the automobile industry, the commerce ministry, and international partners.
