Ahead of the upcoming Pakistan Auto Policy 2026-31, PAAPAM has proposed a tariff structure with a 50% duty on imported vehicles, 40% on localized parts, 30% on CKD kits, and near-zero duty on raw materials. These are industry recommendations submitted to the government, not confirmed policy the final Auto Policy 2026-31 could differ from what PAAPAM has proposed.
Pakistan's automotive parts industry has put forward a significant tariff proposal ahead of the Pakistan Auto Policy 2026-31. The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) wants imported vehicles taxed considerably higher, while raw materials used in local manufacturing would face little to no duty at all.
It's important to be clear from the outset: this is PAAPAM's recommendation, not government policy. What the association is asking for and what actually ends up in the final Auto Policy 2026-31 could look quite different.
Here's what PAAPAM has proposed, why it's arguing for these changes, and what it could mean for local manufacturing, exports and car buyers if some or all of it is adopted.
What Has PAAPAM Proposed for Auto Policy 2026-31?
PAAPAM's proposed tariff structure spans the full production chain, from fully imported vehicles down to raw production inputs:
| Category | Proposed Duty |
|---|---|
| Completely Built Units (CBUs) | 50% |
| Localized Parts | 40% |
| Completely Knocked Down (CKD) Kits | 30% |
| Locally Produced Raw Materials | 5% |
| Imported Raw Materials | 0% |
The logic behind this proposed tariff structure is straightforward on paper: make it progressively cheaper to manufacture locally the further up the value chain a product sits, while making fully imported vehicles the most heavily taxed category.
Why Does PAAPAM Want Higher Duties on Imported Cars?
PAAPAM argues that imported vehicles put direct pressure on local manufacturers, and that local assembly needs stronger tariff protection to remain viable against fully built imports.
The association's position is that higher CBU duties could encourage localization by making imported alternatives comparatively more expensive, which in turn could drive more investment and employment into domestic production.
PAAPAM has framed expanding local parts manufacturing as a core policy objective not just a byproduct of protecting existing assemblers, but a deliberate industrial development goal.
PAAPAM's Proposed Duty Structure Explained
The 50% duty on imported vehicles applies to Completely Built Units vehicles imported fully assembled, with no local manufacturing input at all.
The 40% duty on localized parts targets components that could reasonably be manufactured domestically. PAAPAM's argument here is that a higher duty on these specific parts reduces manufacturers' incentive to keep sourcing them from abroad.
The 30% duty on CKD kits covers vehicles assembled locally from imported component kits a middle ground between full imports and genuine local manufacturing, taxed accordingly.
At the other end, a 5% duty on locally produced raw materials and zero duty on imported raw materials are both aimed at the same goal: making the actual inputs to local manufacturing as cheap as possible, regardless of where those raw materials come from.
The zero-duty proposal on imported raw materials is arguably the most consequential piece for manufacturers specifically it would mean production inputs get cheaper even while finished imported vehicles get more expensive.
Why Is Localization Important for Pakistan's Auto Industry?
PAAPAM's broader case rests on a chain of reasoning: localization drives local parts production, which attracts investment, builds manufacturing capability, creates jobs, and eventually supports exports.
According to PAAPAM, the industry currently faces a structural cost disadvantage of approximately 34%, driven by higher energy costs, financing costs, taxation, freight, certification requirements and logistics compared with regional competitors.
The association has also emphasized the scale of what's at stake: 300+ PAAPAM member companies, roughly 1,200 firms across the broader automotive ecosystem, approximately 300,000 direct jobs and 1.5 million indirect livelihoods, spread across 13 car assemblers, 50+ motorcycle/e-bike assemblers, 10 truck and bus assemblers, and 3 tractor assemblers.
These figures come from PAAPAM's own submissions and public statements — they represent the industry's self-reported scale rather than independently audited government data.
PAAPAM Warns Against a One-Size-Fits-All Tariff Policy
Separately from the Auto Policy itself, PAAPAM has raised concerns about the National Tariff Policy 2025-30, which proposes reducing the maximum import tariff across sectors to 15%.
The association's worry is that a blanket, economy-wide tariff ceiling could ignore the automotive sector's specific circumstances, potentially undermining the competitiveness of local assemblers and parts manufacturers who are already operating at a cost disadvantage.
It's worth being precise here: the National Tariff Policy 2025-30 and the Auto Policy 2026-31 are two separate policy frameworks. PAAPAM's concerns about the former don't automatically apply to the latter, even though both affect the same industry.
Used Car Imports and Local Auto Industry Concerns
PAAPAM has also flagged concerns around used car imports and CKD restrictions, arguing these contribute to market fragmentation that makes local planning harder for assemblers and parts manufacturers alike.
According to PAAPAM, Pakistan's domestic car sales volume currently sits at roughly 2005 levels, despite the market now supporting 13 car assemblers and more than 40 models a sign, in the association's view, of a market spread thinner than it can efficiently sustain.
Can Pakistan's Auto Parts Industry Reach $1 Billion in Exports?
PAAPAM believes auto parts exports from Pakistan could potentially reach $1 billion, though it frames this as a longer-term goal rather than an immediate target.
To get there, the association has called for low-cost financing specifically for component exporters, along with lowering the exporter classification threshold from 80% to 25% a change that would let more companies qualify as exporters even if exports don't yet make up the majority of their business.
PAAPAM has framed this as part of a gradual, 5–10 year development timeline rather than something achievable overnight.
PAAPAM Wants Longer Export Realization Period
On the financial side, PAAPAM has also asked the State Bank of Pakistan (SBP) to extend the export realization period from the current 180 days to 365 days.
The association's argument is that automotive R&D, engineering development and export contracts typically run on longer cycles than the current 180-day window accommodates, making the shorter timeline a genuine constraint on export growth rather than just an administrative detail.
What Could the Proposed Auto Policy Mean for Car Buyers?
If higher CBU duties are eventually adopted, imported cars could become more expensive for Pakistani buyers. If raw-material duties fall as proposed, local manufacturers may potentially benefit from lower input costs, which could — but wouldn't necessarily filter through to consumers.
If localization increases as a result of this tariff structure, more locally produced components could enter the supply chain over time, potentially improving parts availability and repair costs for existing vehicle owners.
The honest answer for buyers is that the final impact depends entirely on the government's eventual tariff structure and how it's implemented — none of this is locked in yet. Regardless of how the policy shakes out, everyday car care products in Pakistan remain a practical way for owners to manage running costs on the vehicles they already have.
Imported and New-Energy Vehicles in the Mix
Imported premium and electric SUVs would be directly affected if CBU duties rise as proposed, since many of these models currently enter Pakistan as fully built imports rather than local assemblies.
Owners of vehicles like the BYD Sealion 7 and Deepal S07 would be watching this tariff debate particularly closely, given how directly import-duty changes could affect future pricing for these and similar new-energy vehicles.
What Happens Next?
PAAPAM has submitted its position paper and has requested a meeting with Prime Minister Shehbaz Sharif to press its case directly.
From here, the government still has to finalize the Auto Policy 2026-31. PAAPAM's proposed duties are not automatically adopted just because they've been submitted the final policy could differ meaningfully from what the association has recommended, in either direction.
Pakistan Auto Policy 2026-31: PAAPAM vs Current Tariff Approach
| Issue | PAAPAM Proposal |
|---|---|
| Imported vehicles | 50% duty |
| Localized parts | 40% |
| CKD kits | 30% |
| Local raw materials | 5% |
| Imported raw materials | 0% |
| Auto parts exports | $1 billion potential |
| Export financing | Low-cost financing proposed |
| Export realization period | 365 days proposed |
Final Thoughts
Pakistan Auto Policy 2026-31 is shaping up to be a genuinely consequential piece of industrial policy, and PAAPAM's proposal gives a clear sense of what the local manufacturing side of the industry wants: heavier protection for domestic assembly, cheaper inputs for local production, and a real push toward becoming a meaningful auto parts exporter. Whether the government adopts this structure as proposed, modifies it, or takes a different direction entirely remains to be seen but the direction of the debate is now firmly in public view.
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