Auto policy reforms have been delayed after Pakistan’s leading car manufacturers successfully persuaded the government to shelve the proposed framework, prompting authorities to restart consultations over electric vehicle (EV) incentives and industry concerns.

The Ministry of Industries and Production had prepared the Auto Policy 2026-31 following consultations with stakeholders, with a strong emphasis on accelerating the adoption of electric vehicles to reduce Pakistan’s dependence on imported petroleum products.

The proposed policy gained urgency amid concerns over energy security following the recent US-Iran conflict. As Pakistan imports nearly 80% of its petroleum products, policymakers viewed the shift toward electric mobility as a strategic priority.

However, local automobile manufacturers opposed key elements of the draft policy, arguing that the proposed incentives would place conventional vehicle makers at a competitive disadvantage.

According to sources, industry representatives approached Prime Minister Shehbaz Sharif and requested a review of the policy. The government subsequently shelved the draft and formed a new committee to prepare a revised version.

Sources said Prime Minister Shehbaz Sharif has tasked Deputy Prime Minister Ishaq Dar with overseeing the preparation of a new auto policy.

The delay has created fresh challenges for the automotive industry.

The Auto Industry Development and Export Policy 2021-26 expired on June 30, 2026, and without a replacement policy in place, tax concessions for hybrid vehicles automatically lapsed.

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As a result, the Federal Board of Revenue (FBR) restored the 25% General Sales Tax (GST) on hybrid electric vehicles (HEVs) and plug-in hybrid vehicles from July 1, 2026.

Previously, HEVs benefited from a reduced GST rate of 8.5%.

The tax increase has significantly affected the market. Toyota and Honda have raised hybrid vehicle prices by more than Rs1.3 million on some models, while several manufacturers temporarily suspended invoicing and deliveries due to policy uncertainty.

The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has expressed disappointment over the delay and urged the government to introduce an interim tax structure, proposing an 18% GST on hybrid vehicles until Pakistan develops a stronger EV charging network and domestic electric vehicle supply chain.

PAAPAM clarified that it supports the transition to electric vehicles but believes the shift should be gradual and backed by local manufacturing, technology transfer and industrial development.

The association recommended linking EV incentives to increasing localisation targets and promoting domestic production of batteries, electric motors and electronic components. It also called for support to help existing auto parts manufacturers modernise their facilities and compete in the emerging EV market.

In addition, PAAPAM urged the government to ensure equal opportunities for existing manufacturers introducing electric and hybrid models while safeguarding investments already made in conventional vehicle production.

The association warned that excessive incentives for imported EVs without a comprehensive transition strategy could weaken Pakistan’s local manufacturing base, threaten thousands of jobs and increase reliance on imported vehicle kits.