Auto Industry Divided Over National Tariff Policy 2025-30
Pakistan’s proposed National Tariff Policy 2025-30 has triggered a heated debate within the country’s auto industry, with manufacturers warning that sweeping tariff reforms could weaken local manufacturing, reduce investment and threaten thousands of jobs. However, economists and trade experts argue that lowering tariffs could increase competition, improve efficiency and make vehicles more affordable for consumers.
The federal government’s proposed tariff overhaul aims to simplify Pakistan’s import duty structure and gradually reduce protection for domestic industries. While supporters believe the reforms will encourage productivity and integrate Pakistan into global supply chains, local manufacturers fear the policy could undermine decades of investment in the country’s automotive sector.
Industry representatives say Pakistan has spent more than 40 years developing a domestic automotive ecosystem that now includes vehicle assemblers and nearly 2,000 local auto parts manufacturers. They argue that reducing tariff protection without addressing other structural issues would put this ecosystem at risk.
Manufacturers Say Taxes, Not Tariffs, Drive High Vehicle Prices
Ishtiaq Hussain Siddiqi, Chief Executive of SM Engineering, said the country’s high vehicle prices are not primarily the result of tariff protection but rather the heavy tax burden imposed on the sector.
He explained that the automotive industry remains one of Pakistan’s largest contributors to indirect taxes and is subject to multiple levies, including customs duty, additional customs duty, regulatory duty, federal excise duty, sales tax and high corporate taxes.
According to Siddiqi, these cumulative taxes significantly increase vehicle prices and have kept Pakistan’s car ownership rate among the lowest in the region.
He also challenged comparisons with India, which is often presented as an example of successful tariff liberalisation.
Siddiqi noted that India still imposes import duties ranging from 60% to 100% on imported passenger vehicles, depending on engine size. Incentives are mainly provided for electric vehicles, but only when manufacturers commit to substantial local production.
He added that India also protects its domestic industry through strict import licensing, mandatory Bureau of Indian Standards certification and the government’s “Make in India” programme, which promotes local manufacturing.
According to Siddiqi, Indian policymakers describe these measures as a carefully sequenced industrial strategy rather than protectionism.
He argued that Pakistan remains one of the few developing countries capable of manufacturing vehicles across the entire automotive value chain, including passenger cars, commercial vehicles, trucks, buses, tractors, motorcycles and three-wheelers.
He warned that removing tariff protection without broader industrial reforms could sacrifice this manufacturing capability for only limited short-term reductions in vehicle prices.
Industry Calls for Localisation and Tax Reforms
Siddiqi recommended improving the enforcement of SRO 693, reducing the cascading tax burden and correcting the customs duty imbalance introduced through the Finance Act 2026.
He said the current structure has created an anomaly where imported completely built-up (CBU) vehicles and some imported parts have become cheaper than completely knocked-down (CKD) kits used by local assemblers.
Auto industry expert Mashood Ali Khan also expressed concern over the proposed National Tariff Policy 2025-30, saying the reforms are being influenced by both the federal government and the International Monetary Fund (IMF).
He acknowledged that previous tariff policies introduced between 2016 and 2026 successfully attracted several new automotive companies into Pakistan. However, he said many of these new entrants failed to significantly increase local production despite receiving tariff incentives.
According to Khan, new manufacturers concentrated on launching new vehicle models instead of investing in localisation and expanding Pakistan’s vendor industry.
He said established manufacturers, commonly referred to as the “Big Three,” have maintained localisation levels of between 60% and 70%, helping sustain domestic parts manufacturers.
In contrast, many newer Korean and Chinese brands have yet to develop a comparable local supplier network.
Khan questioned whether lowering tariffs to around 15% would improve localisation when significantly higher tariff protection had already failed to encourage deeper local investment.
He recommended introducing legally binding localisation targets for new manufacturers, setting measurable benchmarks for local parts development over the next five years and promoting investment in raw material production through business-to-business partnerships.
He also urged policymakers to extend localisation efforts to trucks and buses, where increased imports are similarly affecting local parts manufacturers.
Economists Support Greater Competition
Meanwhile, IBA Assistant Professor and international trade specialist Aadil Nakhoda offered a different perspective.
He agreed that Pakistan’s complicated tariff structure has increased vehicle prices but stressed that tariffs should not be confused with ordinary taxes.
According to Nakhoda, customs duties and additional customs duties raise the value on which other taxes are calculated, making imported products even more expensive for consumers.
He argued that this cascading effect contributes significantly to high vehicle prices in Pakistan.
Comparing Pakistan with India, Nakhoda highlighted that India produces more than 4.4 million passenger vehicles annually and hosts dozens of original equipment manufacturers (OEMs) competing at large production scales.
India’s automotive parts industry exports products worth more than $20 billion annually while investing heavily in research and development.
Pakistan, by comparison, lacks major Tier-1 automotive suppliers and has limited investment in research, innovation and advanced manufacturing.
Balancing Protection and Competitiveness
Nakhoda argued that long-term tariff protection has largely sheltered an uncompetitive market rather than creating globally competitive manufacturers.
He said Pakistan should focus on improving productivity, quality certification, manufacturing standards and non-tariff measures that would allow local companies to participate in international supply chains.
He also pointed to India’s ongoing free trade agreements with the European Union and ASEAN countries as examples of how industrial competitiveness can be strengthened alongside gradual market liberalisation.
Policy Debate to Shape the Future of Pakistan’s Auto Industry
The debate surrounding the National Tariff Policy 2025-30 highlights the challenge facing policymakers as they seek to balance consumer affordability with industrial development.
While manufacturers argue that continued protection and stronger localisation policies are necessary to safeguard investment and employment, economists contend that greater competition, improved productivity and integration into global value chains are essential for building a more competitive automotive industry.
The government’s final tariff policy is expected to play a critical role in shaping the future direction of Pakistan’s automobile sector and its long-term competitiveness in regional and global markets.