Pakistan’s SME auto parts industry has raised concerns over a reported proposal to provide tax relief on luxury vehicles priced above PKR 10 million.
Industry representatives argue that such a move would benefit only a small number of high-income buyers while offering limited support to local auto parts manufacturers. They say the government should instead focus on measures that can increase vehicle sales, production and localization.
Industry Seeks Lower Tax On Small Cars
The sector has proposed reducing the sales tax on vehicles below 1,000cc from 18% to 9%.
According to Mashood Khan, smaller vehicles are more accessible to middle-class consumers. Lower taxes could increase demand, encourage higher production volumes and create more opportunities for SME auto parts manufacturers.
The industry believes this approach could benefit both consumers and the government by supporting economic activity while broadening the tax base.
Rising Auto Imports Raise Concerns
The industry also highlighted Pakistan’s growing dependence on imported automotive components.
CKD and SKD kit imports reached around $2.118 billion in FY26, while the combined figure over the past four years has reached approximately $6 billion, according to the industry.
Representatives argue that continued reliance on imported kits is difficult to sustain while Pakistan remains under an IMF programme and faces pressure to manage its external account and fiscal position.
Luxury Segment Offers Limited Localization Benefits
The industry says localization in the high-end vehicle segment has remained limited, particularly for Chinese and Korean brands.
Mashood Khan argued that policies focused on expensive vehicles have historically benefited only a few thousand consumers without generating sufficient business for SME auto parts manufacturers.
The industry believes stronger localization requirements would be more effective than simply reducing taxes on expensive vehicles.
Focus Shifts To SME Auto Parts Manufacturers
The industry has welcomed the Ministry of Industries’ reported focus on expanding SME auto parts manufacturing under the upcoming Auto Policy.
Manufacturers are calling for policies that encourage local production, higher volumes, investment and job creation, rather than incentives primarily targeted at the luxury vehicle market.
Localization Should Be Part Of Any Tax Incentive
Industry representatives acknowledge that the government may be considering tax incentives to promote cleaner vehicles and environmentally friendly technologies.
However, they argue that any such incentive should come with clear conditions.
These could include binding localization targets and commitments to maintain at least one vehicle model in Pakistan for five years, rather than frequently changing models without developing a sustainable local supplier base.
Policy Priorities Under Scrutiny
The debate comes at a time when Pakistan is managing limited fiscal space and difficult economic adjustments under its IMF programme.
The auto parts industry argues that reducing taxes on smaller vehicles would provide broader economic benefits by supporting middle-class consumers, increasing production and strengthening domestic manufacturing.
The government now faces a policy choice between offering incentives to the high-end vehicle market and directing tax relief toward segments that could generate wider benefits for consumers, SMEs, employment and localization.