Auto experts flag weak localisation in Pakistan’s draft 2026-31 policy
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Automotive industry experts have criticized Pakistan’s proposed Automotive and Auto Parts Manufacturing Policy 2026-31, arguing that its framework heavily favors vehicle assembly and imports while leaving a 34% structural cost gap unaddressed. Analysts warned that the draft's minimum domestic value addition requirements—starting at 10% for four years before rising to 15%—alongside a flat 15% duty, threaten existing local parts manufacturers and established vendors. Industry stakeholders noted that while lower EV kit duties and incentives for components like batteries and electric motors could encourage foreign investment, the policy lacks adequate protections for domestic suppliers. Concurrently, the Pakistan Association of Automotive Parts and Accessories Manufacturers raised formal objections against reduced localisation targets for new-energy vehicles, warning of long-term risks to domestic industrial depth as an inter-ministerial committee evaluates performance-based incentives, export obligations, and gradual tariff reductions.
Automotive industry experts have raised concerns over Pakistan’s proposed Automotive and Auto Parts Manufacturing Policy 2026-31, arguing that the draft does not provide sufficient measures to strengthen local parts manufacturing and could increase the sector’s reliance on vehicle assembly and imports.
Auto analyst Zain Shariq described the proposed framework as heavily tilted towards vehicle assembly and imports, saying stronger measures were needed to encourage domestic parts production. He also questioned the inclusion of hybrid electric vehicles (HEVs) in the 18% sales tax regime, arguing that incentives should take account of fuel savings and actual localisation.
Shariq also said the draft treats exports as an expected outcome without adequately addressing Pakistan’s structural cost disadvantage. He estimated the sector faces a 34% structural cost gap, which could make it difficult for local manufacturers to compete internationally without additional measures to improve efficiency and reduce production costs.
Another auto industry consultant, Shafiq Ahmed Shaikh, supported the policy’s broader shift towards electric vehicles, foreign investment and competition, saying lower duties on EV kits could attract global manufacturers and help develop local suppliers of high-value components.
Shaikh said higher localisation requirements could encourage Pakistani vendors to manufacture batteries, electric motors, controllers, wiring harnesses and copper-based components. He also proposed specialised economic zones with shared testing facilities to help local manufacturers meet international standards and integrate into global EV supply chains.
However, Shaikh warned that the proposed flat 15% duty could undermine existing localised production and parts manufacturers. He said a differentiated approach would be needed to protect established vendors while encouraging new investment and competition.
The debate follows earlier objections from the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), which has criticised proposed reductions in localisation requirements for new-energy vehicles. PAAPAM had warned that a minimum domestic value addition requirement of 10% in the first four years, rising to 15% in the fifth year, could weaken Pakistan’s domestic auto-parts industry.
The government’s inter-ministerial committee, meanwhile, has proposed a broader restructuring of the sector, including greater domestic value addition, export obligations, technological upgrading, performance-based incentives and gradual tariff reductions. The final policy is expected to determine how Pakistan balances cheaper vehicles and new technology with the development of its domestic manufacturing base.
