Govt Finalises Auto Policy with EV Incentives

The federal government has finalised a five-year Auto and Auto Parts Manufacturing Policy for 2026–30, aimed at enhancing localisation and promoting the production of both electric and conventional vehicles through a framework of reduced duties and targeted tax incentives, according to a news report.

Sources indicate that the policy proposes the elimination of additional customs duty and a phased reduction of regulatory duties in alignment with the National Tariff Policy. Under the proposed structure, customs duty on sub-components and components used in auto parts manufacturing under SRO 655(I)/2006 will be set at 5%, while assemblies and sub-assemblies will attract a 10% duty effective July 1, 2026.

It is further proposed that regulatory duty and additional customs duty on covered items will gradually be reduced to zero, ultimately leading to the phase-out of SRO 655(I)/2006 from the bill of materials and input-output regime.

The policy introduces a comprehensive incentive regime for New Energy Vehicles, including Battery Electric Vehicles, Range-Extended Electric Vehicles, Plug-in Hybrid Electric Vehicles, and Fuel Cell Electric Vehicles.

A concessional customs duty of 1% has been proposed for New Energy Vehicle-specific components, while hybrid vehicle parts will be subject to a 5% duty. Sales tax on hybrid vehicles is proposed at 9%, equivalent to 50% of the prevailing rate.

For electric vehicles across two-, three-, and four-wheel categories, inputs for both import and local supply may be subject to a reduced duty of 1%. Local vendors supplying EV-related components are also expected to benefit from similar concessions.

Original Equipment Manufacturers will be permitted to import New Energy Vehicle components at a 1% customs duty under the proposed framework.

In addition, customs duty on completely knocked down (CKD) units has been proposed at 5% for non-localised parts and 10% for localised parts until June 30, 2028, with specific exemptions for L6 and L7 vehicle categories.

The Ministry of Industries has also recommended allowing manufacturers of L6 and L7 vehicles to assemble up to 10 units of a single variant locally, after which production may be scaled up to 100 units at a 10% customs duty rate until June 30, 2027.

The policy, prepared as part of the federal budget 2026–27 proposals and set to take effect from July 1, 2026, also outlines a gradual reduction in imports of petrol-powered vehicles while offering incentives to encourage domestic electric vehicle manufacturing.

Officials noted that Special Assistant to the Prime Minister on Industries and Production Haroon Akhtar Khan played a key role in building consensus among industry stakeholders during the formulation of the policy.

The proposed incentives are expected to include sunset clauses, with a transition towards the standard tariff regime planned by the end of fiscal year 2029–30.