Auto policy gridlock persists

The government could not break the gridlock this week over a new auto policy despite the industry ministry showing flexibility to lower the protection wall by up to 52% by 2030 against car imports – but the proposed tariffs remained three times higher than the national tariffs.

A ministerial committee, headed by Power Minister Sardar Awais Leghari, held several meetings in recent days, including one on Thursday, but did not reach a conclusion on the draft of the auto and parts policy for the 2026-31 period, according to officials privy to these discussions.

The industry ministry, responsible for formulating the auto policy, shared revised proposed tariffs showing flexibility against its earlier position. However, the proposed tariffs, excluding federal excise duty impact, were still up to 300% higher than those set under the National Tariff Policy approved by the federal cabinet.

By 2030, the maximum customs duty under the national policy is 15%, but the industry ministry has proposed 60% for vehicles of 1501 to 1800cc – 300% more than the national tariff but 34% less than existing tariffs.

"It is extremely important for us to follow the national tariff policy, but at the same time, competitive advantages like energy costs and taxes have to be quantified and due weightage given in the final draft," Leghari told The Express Tribune. He explained that tariff was just one part of the policy, with other objectives including standardisation, contractual obligations and price reduction for consumers.

The industry ministry believes that completely bulldozing tariff walls cannot ensure competition until local manufacturers are guaranteed sustainable taxation, low energy cost, flexible exchange rate and stable interest rate policies. The ministry has argued that national tariff policy rates are even lower than those implemented by advanced economies and would eliminate local players, turning Pakistan into a trading hub.

The industry ministry proposed a 34% reduction over five years for up to 1800cc cars, terming it a significant drop. For 1001 to 1500cc cars, it proposed minimum tariffs of 45% for 2030 – 200% more than national tariffs but 25% less than existing rates. The ministry believes minimum 40-45% protection is required to avoid imports of finished vehicles.

It warned that markets with higher volumes could dump products in finished condition in Pakistan. The ministry also proposed reducing customs duty on input imports under SRO 655 for parts manufacturing from a maximum of 20% to 5% for import substitution, arguing that local manufacturers are interested in diversification and additional investments to avoid foreign exchange costs, create employment and ensure technology transfer.

The industry ministry said higher costs for internal combustion engines were necessary to change consumer preference towards new energy vehicles. For over 1801cc cars, it proposed 75% tariffs – 266% more than national tariffs but 52% less than existing rates. It believes there will be a significant drop of 52% from existing levels in five years, with proposed customs and excise duty rates avoiding a dip in price.

It also proposed up to 60% federal excise duty for these cars, saying part of excise duty revenues should be used for incentivising exports, attracting anchor parts manufacturing firms and creating automobile testing facilities.

For 801 to 1000cc cars, the industry ministry proposed a 40% minimum tariff – 166% higher than national tariffs but 45% less than existing rates. It also proposed 9.5% federal excise duty for these cars, while under the national policy, excise duty is to be abolished.

There is also a difference of view on exports of vehicles and the penalty regime for companies that would not export a certain number of cars. The officials said that the commerce ministry has proposed one-year relaxation in implementation of these tariffs but remains committed to the end objective of cutting tariffs to 15%.

During Thursday's meeting, discussions took place about the potential savings of foreign exchange reserves in case local production increases under the new policy.

Leghari said the committee wanted to reach a conclusion at the earliest but acknowledged it was a time-consuming exercise to collect various data sets for an informed decision.