The government has announced plans to impose a 40% import tax on commercial imports of used vehicles beginning next month, while also banning the import of cars that have been involved in accidents.
The tariff will decline gradually, dropping by 10 percentage points each year until it is fully phased out by 2030.
Industry Backlash: “On the Brink of Collapse”
Auto representatives have responded with alarm. At a joint session of the Senate Standing Committees on Finance and Revenue, and Industries and Production, representatives warned that:
- Over 2 million jobs could be at risk.
- The industry could lose Rs. 878 billion in annual income.
- Government tax revenue might fall by Rs. 302 billion.
They stressed that Pakistan’s domestic production has stagnated at 150,000 units annually since 2004, a number dwarfed by regional peers (Pakistan Automotive Manufacturers Association, 2024).
Even with limited localisation gains, lower duties on used cars have already eroded sales of new vehicles, and manufacturers argue that higher import penetration will make recovery nearly impossible.
Government’s Position: IMF Commitments Drive the Policy
Commerce Ministry officials, however, countered the industry’s claims. They explained that the government’s hands were tied by commitments made to the International Monetary Fund (IMF).
Under those commitments, Pakistan must gradually relax curbs on the import of used cars and open the market to commercial imports of vehicles under five years old.
Officials stressed that these vehicles would only be allowed entry if they met minimum safety and environmental benchmarks, with the new regime expected to take effect by 30 September 2025 — the close of the first quarter of fiscal year 2026.
While conceding that the short-term impact might be difficult for local assemblers, officials maintained that the long-term benefits of tariff rationalisation — including significantly lower consumer prices and increased competition — would outweigh the immediate challenges, offering a promising future for the industry.
Policy Landscape: Between Protection and Liberalization
This decision sits at the crossroads of two overlapping policies.
- The Auto Industry Development and Export Policy (AIDEP) 2021–26, effective until June 2026, aims to strengthen localisation, exports, and domestic growth, but it relies heavily on protectionist measures (Engineering Development Board, Pakistan).
- The National Tariff Policy (NTP) 2025–30, launching in July 2026, will radically simplify tariffs into just four slabs (0%, 5%, 10%, 15%) by 2030 while abolishing Additional Customs Duties (ACDs), Regulatory Duties (RDs), and the 5th schedule (FBR National Tariff Policy).
The 40% tax on used vehicles is therefore a temporary buffer, designed to manage the transition as Pakistan moves from protectionism to liberalization under IMF pressure.
Regional Lessons: How Others Handled It
Pakistan is not the first country where IMF/WTO liberalization collided with auto industry protectionism.
India (1990s–2000s)
After its 1991 crisis, India liberalized its auto industry under IMF/WTO pressure. By enforcing localisation targets and inviting foreign automakers, India became the world’s 4th largest auto market, producing 4.7 million vehicles annually (Society of Indian Automobile Manufacturers).
Thailand
Dubbed the “Detroit of Asia,” Thailand shifted to an export-led model in the late 1980s under the WTO framework. Today, it produces over 2 million vehicles annually, with half exported (Thailand Board of Investment, 2023).
Indonesia
After the 1997 Asian financial crisis, IMF reforms pushed Indonesia to open its auto sector. Today, it produces 1.4 million vehicles annually and exports nearly 500,000 units (Gaikindo – Indonesian Automotive Industry Association).
Pakistan
In contrast, Pakistan’s output is stuck at 150,000 vehicles annually with negligible exports (PAMA, 2024). Inconsistent policy, shallow localisation, and overdependence on a few assemblers have left the industry vulnerable to shocks.
Broader Implications
For consumers, prices of imported cars will remain high in the short term, frustrating buyers. However, post-2026 reforms could bring cheaper, safer, and more fuel-efficient options.
For industry, assemblers face an existential challenge: without innovation, deeper localisation, and exports, they risk being swept away once tariff walls fall.
For the government, balancing IMF reforms, consumer affordability, and industrial protection is politically sensitive, while for the IMF, the policy is part of a bigger agenda — dismantling tariff walls and pushing Pakistan toward a market-driven economy.
Conclusion: Crisis or Opportunity?
The 40% tax on used cars is not a permanent barrier but a transitional measure. For now, it gives local assemblers breathing space. But from 2026 onwards, Pakistan’s auto industry will face its biggest test yet: either evolve into a competitive, export-oriented sector, or risk being outpaced by global players when tariff barriers collapse.
If India, Thailand, and Indonesia could turn IMF/WTO liberalization into an opportunity for industrial growth. In that case, the question is whether Pakistan will seize the same chance or remain stuck in a cycle of protection and stagnation.
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