Carmakers force govt to scrap EV policy

Auto giants have managed to get the newly proposed auto policy scrapped, and the government has restarted the process to address concerns pertaining to electric vehicles, which pose a serious threat to conventional carmakers.

The Ministry of Industries and Production had drafted a new auto policy after consultation with different stakeholders, and the main focus was on promotion of electric vehicles in the backdrop of US-Iran war.

There had been a clear realisation that Pakistan should shift from the traditional petrol- and diesel-based vehicles to electric cars in order to reduce dependence on the imported fuel.

Pakistan is a net importer of petroleum products, with around 80% of products imported to meet local needs.

However, the proposed policy irritated the local carmakers, who approached Prime Minister Shehbaz Sharif, asking him to review the draft of the auto policy. Sources said that the draft was shelved and a new committee was formed to prepare another policy draft.

But the delay also comes at a cost to the local carmakers. The Auto Industry Development and Export Policy 2021-26 expired on June 30, 2026, and 25% general sales tax (GST) was automatically restored by the Federal Board of Revenue (FBR). It has primarily affected the locally assembled and imported hybrid vehicles as their concessions have expired.

Hybrid electric vehicles (HEVs) had enjoyed a reduced GST rate of 8.5%, and when the new Auto Policy 2026-31 was not notified in time, the concession lapsed.

From July 1, 2026, the GST on HEVs and plug-in hybrid vehicles reverted to 25% while the conventional petrol and diesel cars were already generally subject to the 25% tax rate.

This forced Toyota and Honda to hike hybrid vehicle prices by more than Rs1.3 million in some cases, while certain manufacturers suspended invoicing and deliveries due to the uncertainty.

Sources said that PM Sharif has now tasked Deputy Prime Minister Ishaq Dar to prepare a new draft of the auto policy.

The delay has caused dismay among the Pakistan Association of Automotive Parts & Accessories Manufacturers (Paapam) and other industry representatives, who are asking the government to introduce a balanced tax structure – such as 18% GST on hybrid – until Pakistan's charging network and EV parts industry are sufficiently developed.

The industry's main concern was not the introduction of EVs itself. It was the proposed unequal treatment between EVs and conventional internal combustion engine vehicles. Paapam was of the view that Pakistan should move towards EVs; however, the transition must be gradual, with focus on local manufacturing and technology transfer.

It also called for linking EV incentives with increased localisation every year and proposed the local production of batteries, motors and electronic components as well as tech transfer to Pakistani vendors.

It sought assistance for the existing parts manufacturers to convert their factories and equal opportunities for the already functioning manufacturers to introduce EVs and hybrids. It also advocated protection for the companies that import most components and undertake only basic assembly.

Paapam warned that the proposed Auto Policy 2026-31 has given significant advantages to EVs while it lacks a clear transition plan for conventional carmakers and parts manufacturers. It was afraid that indiscriminate EV concessions could replace local manufacturing with imported EV kits, put existing investments in jeopardy and threaten employment.