Auto Sector Tariffs: Protection Without Performance
Prime Comment #41
Pakistan’s auto sector is stuck between policy frameworks that cannot coexist. The National Tariff Policy commits the government to imposing a maximum customs duty of 15% by 2030. The proposed Auto and Auto-Parts Manufacturing Policy, as reported, seeks to maintain protection. The current auto policy technically expired in June, with no replacement available. The longer this goes on, the more difficult it gets for anyone to plan for the long run.
The delays have become a policy cost. Before committing capital, existing manufacturers, new entrants, and investors in electric vehicles need to understand the tariff schedules, localisation requirements, and regulatory commitments. Prolonged uncertainty hampers investment, particularly as Pakistan aims to establish itself as a regional EV manufacturing hub.
The industry’s plea for extended protection is based on familiar sets of claims. Pakistan is one of the few developing countries with full-fledged car manufacturing capabilities. Almost 2,000 part manufacturers supply the value chain. The industry argues that reducing tariffs would undermine the manufacturing ecosystem and vendor base built over decades. However, the industry’s own record negates it. The auto policies of 2016-2021 and 2021-2026 attracted new entrants with a 25% tariff advantage over incumbents. Most models were launched quickly without further localisation. The Big Three maintained 60-70% local content, but new companies did not significantly grow the vendor base. If extensive protection did not result in localisation, the burden of proof shifts to those who assert that maintaining high tariffs will.
The frequent comparison with India warrants closer examination. India maintains tariffs of 60-100% on passenger vehicles. However, India produces over 4.4 million automobiles every year, has dozens of OEMs competing on a large scale, and its parts manufacturers export more than $20 billion while investing in research and development. In FY2026, Pakistan produced 237,218 units of vehicles in categories including passenger cars 158,190, jeeps & pick-ups 49,395, trucks & buses 29,633, motor cyclers and three wheelers 1,974,667 and farm tractors 192,404 units. Pakistan has no Tier-1 producers and minimal R&D. India’s protection operates amid intense domestic competition. While Pakistan operates an oligopoly.
The Finance Act of 2026 has introduced another distortion, providing a duty structure in which importing a fully built vehicle can be cheaper than importing CKD kits for local assembly. The government has undercut the industry it claims to protect. The true cost of this standoff is that investment decisions are held in abeyance. The NEV policy targets 30% electric vehicle sales by 2030, but it is meaningless if the regulatory framework remains deadlocked between ministries. Pakistan’s auto sector does not require any more time behind tariff walls. It requires a credible, time-bound structure that links market access to quantifiable outcomes. Protection without accountability does not constitute industrial policy. It is a rent distribution.