ISLAMABAD: The prices of vehicles are expected to reduce in Pakistan with the implementation of tariff reforms, says a research study done by the Pakistan Institute of Development Economics (PIDE), an affiliate of the Planning Commission.
According to the report released on Tuesday, in recent years, when the taxes have remained high and production costs have also increased, vehicle affordability has become difficult for the general public.
With the reduction in import taxes on Completely Built Units (CBU) and a similar reduction in import tariffs for CKD kits, the prices of vehicles are expected to reduce. This will improve vehicle affordability among the general public and possibly contribute to an increase in demand for vehicles. As a result, the improved demand will certainly have a positive impact on the industry and vehicle ownership.
For the automobile industry in particular, tariffs on CBUs will be reduced from 20% to 15% over ve years, while used-vehicle tariffs will start with a 40% surcharge above new vehicle rates in FY26, decreasing annually by 10% and ending at parity by 2030.
The government also intends to abolish the “Fifth Schedule” exemptions and eliminate protectionist regulatory complexities. However, stakeholders in the industry have expressed concerns. The local original equipment manufacturers (OEMs) caution that the sudden surge in used-car imports, potentially reaching 70,000–80,000 units annually, could devastate domestic vehicle production and reverse the hard-won gains in local content, employment, and investment.
Concurrently, these tariff reductions support broader environmental goals: the government plans to introduce a carbon levy and incentives for electric vehicles (EVs), to achieve 30% EV penetration among new vehicles by 2030.
A proposed petrol-diesel levy may raise PKR 25-30 billion annually over ve years, which can fund EV infrastructure development.
Automobile manufacturers and assemblers in Pakistan have been operating for over 20 years behind protected tariff walls with a captive market and demand throttled by a booking system.
Higher tariffs and an unfavorable exchange rate are the primary cause of price increases of vehicles. Now they are being asked to step out from behind their protected walls and compete with rms that operate outside Pakistan. Are the concerns of local assemblers’ justi ed, or is it an aversion to change and the nudge towards competition?
For the consumer, the change can be a welcome one; access to better quality, more choice, lower prices. The focus of the government on shifting from ICE to EV vehicles can receive a boost. This policy viewpoint will assess the potential gains and losses for each of these stakeholders in the economy.
There is no doubt that the reduction in tariffs for the automobile imports along with easing up the CBU vehicle import regulations will have signi cant impacts for the local automobile industry, but it does not mean that the impact will necessarily be one-sided.
On the contrary, there could be some positives gained from the reduction in tariffs while some new challenges will certainly arise as well.
The probable impacts on the domestic industry as a result of tariff reduction can be categorized according to the increased competition, tariff induced cost reduction, improved vehicle affordability and labor market impact.
Reduction in tariffs and easing up import regulations will increase the competition in the local automobile industry as a wider range of vehicles will be available for the consumers to pick from.
As a result, some of the local industry players may face diffculties in adapting to the new circumstances and be forced to either limit their operations or even exit the industry. For others, this could be an opportunity to improve their products and maintain their share of the market.