KARACHI: Pakistan’s automotive sector is facing heightened uncertainty ahead of the FY26 budget as the International Monetary Fund (IMF) urges the government to cut high tariffs and allow commercial imports of used vehicles, aiming to increase market competitiveness and lower prices for consumers.
The IMF argues that the domestic auto industry remains overprotected, with taxes and duties exceeding 40% on locally assembled vehicles. It has called for tariff rationalisation under the current standby agreement to improve efficiency and consumer affordability.
On May 6, top representatives from automobile assemblers and parts manufacturers met with Special Assistant to the Prime Minister (SAPM) Haroon Akhtar Khan in Islamabad. They warned that easing restrictions on used car imports and reducing tariffs on completely built units (CBUs) could cripple the local industry.
The SAPM assured stakeholders that the government would not take any steps to undermine the industry or its investments, and emphasized that any policy shift would be done in consultation with the industry to maintain a balance between protection and reform.
Currently, auto part manufacturers operate under some of the highest tariff protections, with effective rates nearing 98% — a cost that ultimately falls on consumers, already strained by inflation and stagnant incomes.
The proposed reforms include a 5% to 15% tariff reduction, alongside a gradual rollback of additional customs duty (ACD) and regulatory duty (RD). Tariff cuts on CBUs with larger engine capacities may be more aggressive.
While many in the industry warn that such changes could destabilise local production, the IMF believes reform would lower vehicle prices and boost consumer access. Critics, however, argue that the core issue is not tariffs, but the inefficiency and high cost of local production.
Members of the Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) argue their sector is competitive and vital to the economy, supplying Rs325 billion worth of parts annually and saving at least $480 million in foreign exchange. The industry also supports over 150,000 direct jobs and another 500,000 indirectly through lower-tier suppliers.
Despite these claims, questions persist. A National Assembly committee has asked why, if local production is competitive and of global standard, exports remain negligible. Although over 40 Paapam members export to countries including Europe, Africa, the US, and China, volumes are still limited.
Some in the industry disagree with the IMF’s characterisation of the sector as overly reliant on tariff protection, while others welcome competition and tariff reform as a potential catalyst for improving quality and reducing stagnating demand.
An auto assembler noted that rationalisation, paired with new entrants, could lower vehicle prices and revive interest in a sluggish market.
