Auto Policy 2026-31 proposes lower tariffs, GST rates on electric, hybrid vehicles

• Auto Development Levy aims to raise Rs232bn over 5 years.
• Auto policy sets $6bn export target over five years.
• EVs face proposed GST rates of 1%, 6% and 9%.
  

Prime Minister Shehbaz Sharif on Tuesday gave in-principle approval to the Auto Policy 2026-31, which proposes reducing the average tariff to 15% and lowering the GST rate on various electric and hybrid vehicle variants.

The government proposed an Auto Development Levy with different rates to collect Rs232bn over five years. This amount is going to be utilised for the provision of Drawback of Local Taxes and Levies (DLTL) for exporters, for which the government has given a mandatory export target of $6 billion in a five-year period for cars, jeeps, SUVs and double-cabins to fetch $2.078 billion, tractors $233.4m, bikers, rickshaws $409.4 million and exports by parts manufacturers to the tune of $3.29 billion in a total five-year period, The News reported on Wednesday.

The proposed Auto Policy for the next five years from 2026-31 envisages mandatory export targets for the auto manufacturers and a framework for ensuring domestic value addition. “Now the proposed Auto Policy will be forwarded to the prime minister for formal approval and then to the International Monetary Fund (IMF) for securing final endorsement. Heated debate is expected on the government’s proposed policy to promote New Electric Vehicles (NEVs),” top official sources confirmed while talking to The News.

The NEVs (New Energy Vehicles) are encouraged preferentially vis-à-vis ICE (Internal Combustion Engine) vehicles by giving a reduced rate of sales tax of 1% on Battery Electric Vehicle (BEVs), 6% on Range Extended Electric Vehicle (REEVs) and 9% on Plug-in Hybrid Electric Vehicle (PHEVs) (both locally assembled and imported vehicles) and 18% on Hybrid and ICE vehicles. So the reduced rates of GST are proposed at 1%, 6%, 9%, and 18%, respectively. The government wants to encourage EVs and hybrid vehicles to improve the climate, as 80% of environmental pollution is caused by vehicular emissions.

For NEVS, the auto policy proposed reduced tariffs (5%) for the first 2 years of the policy on import of small EVs (less than $15,000 CIF) and reduced tariffs on EV-specific non-localised parts/CKD import (1%).

It is proposed to enhance the credit limit for NEV financing from Rs3 million to Rs10 million (tenor 3 years to 5 years) by the SBP. A gradual phasing out of the SRO regimes is planned, and the 5th Schedule of the Customs Act will be phased out by the end of the policy period.

The CKD tariff structure of NEV vehicles encourages NEV production due to lower duties. If there is a need for further FED, it will be imposed by FBR in consultation with MoIP on ICE vehicles. ICE vehicles above 2000cc and NEVs exceeding the value of $75,000 shall be charged with higher rates of FED to discourage their use.

For the automotive development levy, it is proposed that up to 1,000cc cars, there will be zero levy; from 1,000cc to 1,300cc, the proposed rate of levy is 2%, from 1,300cc to 2,000cc, the rate is 2%, from 2,000cc to 3000cc the rate of levy is proposed at 10%, and above 3,000cc the rate will remain the same at 10%. For levy collection on imports, the proposed rate up to 1,000cc is zero, from 1,000cc to 1,300cc the rate is proposed at 2%, from 1,300cc to 2,000cc, the rate is 2%, and above 2,000cc to 3,000cc the proposed rate is 10%. The proposed levy on prime movers, buses, and trucks is 2%.