PAAPAM Warns Auto Policy Could Threaten 1.5 Million Jobs

The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has called on Prime Minister Shehbaz Sharif to reconsider the proposed Auto Policy 2026–31, cautioning that reduced import duties on vehicles and components, combined with incentives for new-energy vehicles, could undermine domestic manufacturing and put jobs at risk.

In a letter dated October 23, PAAPAM Chairman Abdul Rehman Aizaz highlighted the industry's economic contribution, stating that Pakistan's auto parts sector consists of more than 1,200 companies, supports around 1.5 million jobs and generates approximately $1.8 billion annually through import substitution.

The association noted that local manufacturers supply vehicle assemblers with components worth Rs700 billion. It warned that easier access to imported vehicles and parts could weaken demand for locally produced components and jeopardise investments made in domestic manufacturing.

PAAPAM has requested a meeting with the prime minister to discuss alternative recommendations before the policy is finalised.

The proposed policy seeks to gradually reduce import tariffs, introduce export-linked incentives and offer preferential tax treatment to new-energy vehicles. The government aims to encourage competition while expanding Pakistan's presence in international automotive markets.

A central target is to achieve cumulative exports of $6 billion in vehicles and automotive components by 2030–31. Under the draft, manufacturers meeting export targets could receive incentives, while those failing to fulfil their commitments may face penalties.

The proposed sales tax structure includes a rate of 1% for battery-electric vehicles, 6% for range-extended electric vehicles and 9% for plug-in hybrid vehicles, subject to approval.

These proposals have highlighted growing disagreements among domestic parts suppliers, established vehicle assemblers, importers and companies investing in electric and hybrid technologies.

Importers generally support lower trade barriers, while local manufacturers fear that cheaper imported components and completely built-up vehicles could reduce demand for locally manufactured parts.

The policy debate comes as Pakistan's automotive industry undergoes a major transition. Chinese manufacturers are introducing new models and technologies into a market traditionally dominated by Japanese brands such as Suzuki, Toyota and Honda.

The increasing variety of conventional petrol vehicles, hybrids, plug-in hybrids, battery-electric vehicles and range-extended electric vehicles has further complicated industry discussions around taxation, localisation and investment incentives.

A senior official from a Japanese automobile manufacturer observed that the sector no longer shared a single position, as companies and suppliers increasingly pursued different technologies and commercial strategies.

The official cautioned that rapid market liberalisation could harm local production and employment, while excessive protection could limit competition and keep vehicle prices high.

Industry stakeholders acknowledge that reducing tariffs could expand consumer choice and intensify competition. However, they say the actual benefits will depend on whether lower import costs lead to more affordable vehicles and whether domestic suppliers can compete effectively.

They also stressed that consistent long-term policies, greater domestic value addition and measurable export growth will be essential to reduce the industry's reliance on protection and encourage sustainable investment.