Islamabad: The new auto policy 2025-26 in Pakistan aims at promoting small cars and localization.
It offers incentives for the introduction of new products in tractors and motorcycles.
It will help to protect consumers and to promote new technologies i.e. EVs and Hybrids. It targets export markets.
The government of PTI had incentives in budget 2021-22.
The incentives will apply to new models of all existing as well as new entrants for vehicles up to 1000 cc.
The cabinet had also approved incentives in the cabinet on December 21, 2021.
The auto policy, 2021-26 will result in affordable cars, vans & Light Commercial Vehicles (LCVs) up to 1000 cc under Meri Garri Scheme in Pakistan.
The government removes all taxes. It reduced ACD, AST, WHT & FED, and ACD on CBUs to zero.
It also reduced sales tax (ST) to 12.5% on locally manufactured cars.
Under New Product Policy, the CD will be (15-30%) +ST @12.5%.
It will be applicable for three years from a manufacturing certificate or 30 June 2026, whichever is earlier.
The cut-off date of approval is June 30, 2023
The auto policy 2021-26 aims at reducing prices of locally manufactured cars down (above 1000 cc).
The government cuts the rate of Federal Excise Duty (FED) by 2.5 % on each category of cars/SUVs/LCVs).
5% to 2.5% for 1001-2000cc
2.5% to 0% upto 1000cc
7.5% to 5% for above 2000cc
New Product Policy
The customs duty on localized parts will be down to 15% (20 % advantage for Agricultural Tractors of new make or new model. as
However, manufacturers will have to provide EDB certification.
The reduction will be for three years from the date of the manufacturing certificate or up to 30th June 2026, whichever is earlier.
The Custom Duty on localized parts will be 30%, reduced by 16% for motorcycles exceeding 125 cc, motorcycle rickshaws, and auto-rickshaws exceeding 200 ccs.
It will be for three years from the date of issuance of the manufacturing certificate or up to 30th June 2026 whichever is earlier.
Whereas non-localized parts will attract CD @ 15%.
The government has set the cut-off date for issuance of the manufacturing certificate as 30th June 2023.
Tackling ‘On money’
The car manufacturers continue charging ‘own money on the delivery of new cars.
The car manufacturers will pay the compulsory payment of KIBOR+3% interest.
It will be on the initial deposited amount in case delivery is beyond 60 days.
Ensuring safety
The government has bound importer-cum-assembler or OEM to comply with the shortlisted WP-29 Regulation.
EDB will determine and will ensure compliance.
There will be no manufacturing or import of vehicles after 30th June 2022 which is not compliant of shortlisted WP 29 regulations.
However, EDB will grant a waiver of up to a total of 24 months, ending on 30.06.24.
But it will be subject to showing reasonable progress in compliance with WP 29 Regulations of UNECE.
Industries ministry will grant relaxation for one year following recommendations of Industries Ministry.
Incentives on EVs
The government approves 1 % customs duty (CD) on Specific Parts for electric vehicles.
It reduces sales tax to 1% from 17% on locally manufactured EVs with battery packs below 50 KWH.
The government has also reduced customs duty to 10% from 25% on import of EV CBU.
Incentives for EV-specific parts on motorcycles (CD 1%), 3 wheelers, and heavy commercial vehicles. Further details are mentioned in the policy document
Hybrid manufacturing Policy
There will be a 4% customs Duty on Specific Parts for hybrid electric vehicles.
It will be 3% on Plug-in hybrid electric vehicles.
The government has reduced sales tax to 8.5%.
It also slashed Regulatory Duty (15%) on CBU import of Hybrids for above 1800 cc. It will be zero for 1800 cc and below.
Incentives under Auto Policy 2021-26 in Pakistan
The government has reduced custom duty from the existing 10% to 5% on import of CKD non-localized for rigid trucks above 5 ton GVW.
It will be applicable to those falling under HS Code 8704.
It also reduces Custom Duty from existing 20% to 12.5 on sub-assemblies of vehicles of PCT heading 87.11.
But, it will not be applicable on motorcycle rickshaws of PCT heading 8711.3020.
These measures have removed anomaly as CKD non-localized is at 15%.
OEMs will introduce an online booking system for cars, LCVs & HCVs. It will ensure traceability.
Under auto policy 2021-26, the government has restricted upfront payment to 20% for cars, LCVs, SUVs i.e.
The government will issue approval/issuance of Notification/SRO for import of CBUs 10 per variant maximum of 100 units for cars.
It will allow 200 units for 2-3 Wheelers at 50% of levied CD per company.
It will be subject to marketing and showcase purposes
The government will issue SRO for duty-free import of plants and machinery in a bid to set up EV manufacturing plants.
It reduced tax up to 1000cc not provided to Light Commercial Vehicle (e.g. Ravi) & Vans due to use of the word “Motor Cars”.
The government has approved to change it to “Motor Vehicles” to provide sales tax reduction to vans and LCVs also.
Formulation of Auto Sector Monitoring Committee (ASMC)
The government will form a committee. Secretary Industries will char.
There will be representatives from EDB, M/o Commerce, FBR, CCP, MoST, SBP, PAMA, PAAPAM. It will address the issues of consumers ‘ON-Money’/ delayed deliveries.
Industries Ministry had earlier proposed several tariff cuts for the auto sector in the new proposed auto policy 2021-26 in Pakistan. The objective was to reduce cars prices and boost local production in the future. Earlier, the PML-N government had approved auto policy 2016-21.
It had introduced a new policy to break the monopoly of Japanese-based automakers in the auto sector.
The PML-N government had observed that there was a cartel of three carmakers that were using obsolete technology.
There were also complaints that they were charging ‘own money from the consumers.
In a bid to break the monopoly of Japanese-based car makers, the PML-N government had introduced tariff incentives in the auto sector for new entrants.
That policy had become successful that resulted in attracting investment in the auto sector. This also resulted in introducing several new brands of cars in Pakistan.
Now, the PTI government plans to introduce a new auto policy for the next five years to boost the production of local cars and enhance competition.
The government had already announced tax cuts in budget 2021-22 that resulted in reducing car prices. Now, the government planned to introduce a comprehensive auto policy.
The cabinet had approved the new auto policy 2021026 in Pakistan to promote the auto sector.
Ministry of Industries and Production had proposed zero percent additional customs duty for 1000 cc & below and 2% for 1001 cc & above on Completely Built Units (CBUs).
It has also proposed zero additional custom duty for 1000 cc & below and 2 % for 1001 cc & above on CKD Import/Local Manufacturing.
Reduction in Regulatory Duty (RD) on CBUs
Ministry has recommended zero regulatory duty for 1800 cc & below and 30% for 1801 cc & above.
RD on Hybrid CBUs
It had also proposed zero regulatory duty for 1800 cc & below and 15% regulatory duty for 1801 cc & above on Hybrid CBUs.
Major Interventions
In order to promote cars below 850 ccs, it has proposed a reduction in sales tax at 12.5 % both for CKD and parts on the retail of the vehicles. The government may also remove withholding tax as well in the auto sector.
Tariff Structure Cars/SUVs CKD manufacturing
Government is likely to reduce customs duty by 10% on CKD non- localized from 30 to 20% and 45 to 35% on CKD localized.
However, it may maintain custom duty on raw material, component/sub-component, and EV hybrid-specific electronic parts.
Tariff Structure-cars/SUVs CBU Import
At present, custom duties range between 50 to 100 %. The government plans to reduce gradually these custom duties.
In addition, the government plans to remove additional custom duties on both CKD and CBU imports in auto sector. The government may remove additional sales tax and regulatory duty on CBU import in the new proposed auto policy.
