Increase of 40 percent Import Tax on Used Cars

The government has announced its plan to charge a high 40 per cent duty on imported used vehicles used to enter the commercial market, which is due to start next month. Along with this solution, the importation of cars that have had prior accidents will be put under stricter controls.

This massive tariff is supposed to gradually drop by 10 percentage points every year until it is zero by the year 2030.

Alarm in the Trade: Auto Industry Fears Job Losses and Revenue Decline

Response among the representatives of the auto industry sector has been prompt and harsh. In a joint sitting of the Senate Standing Committees on Finance and Revenue and Industries and Production, the Senate intelligence raised urgent concerns that:

• Almost 2 million jobs are at stake.
• An annual revenue decline of 878 billion is possible in the industry.
• Tax earnings of the government could be reduced by Rs. 302 billion.

They cited that over the past decade, since 2004, there has only been a very low output of half of the number (150,000) of production of locally made vehicles, which cannot be compared to any of its regional peers (Pakistan Automotive Manufacturers Association, 2024).

The low import tariffs on used cars, although the gains do not reflect the same on local plants, have already begun to eat into portions of new car sales, prompting manufacturers to state that a major increase in imports will make recovery virtually impossible.

Government’s Perspective: IMF Commitments Drive the Policy Shift

In reaction to these intimidations, the government spokespersons at the Commerce Ministry gave justification on behalf of the government. They explained that the policy of the government is limited by the obligations to the International Monetary Fund (IMF).

In line with these commitments, Pakistan needs to gradually liberalize the restrictions on the imports of used cars and allow other vehicles to be imported for use that are less than five years old.

Authorities have promised that only such vehicles should be admitted that correspond to the basic safety, environmental requirements, and in this new policy, this will be effective until the end of the first quarter of fiscal year 2026, known as September 30, 2025.

Although the local assemblers would suffer in the short term, they claimed the long-term benefits of rationalizing the tariffs, a significant reduction in consumer prices and increased competition, would override the temporary challenges and lead the industry to a better future.

Policy Landscape: Protectionism vs. Liberalization

This decision is at the cross-section of two policies that overlap one another.

The Auto Industry Development and Export Policy (AIDEP) 2021-26, which is still in force until June 2026, is supposed to increase the level of localization, boost exports, and spur internal development, but it mostly leans on protective policies (Engineering Development Board, Pakistan).

The National Tariff Policy (NTP) 202530, scheduled to be implemented in July 2026, will see tariffs reduced to only four levels (0 percent, 5percent, 10 percent and 15 percent) by 2030 and the removal of Additional Customs Duties (ACDs), Regulatory Duties (RDs) and the fifth schedule (FBR National Tariff Policy).

Accordingly, the 40 percent tax on used cars is in itself a transitory protection measure, meant to facilitate the change towards a more liberalized direction, as Pakistan is currently represented, under the IMF leadership.

Regional Lessons: How Other Countries Navigated Similar Challenges

Pakistan is not isolated in meeting the face-off of IMF/WTO liberalization on the one hand and auto industry protectionism on the other.

• India (1990s2000s): After the crisis of 1991, India liberalized its auto industry under the pressure of IMF/WTO. Through localization objectives and the opening of its doors to foreign automakers, it became the fourth largest car market in the world and manufactures 4.7 million automobiles each year (Society of Indian Automobile Manufacturers).
• Thailand: The Thai country was referred to as the Detroit of Asia because it shifted to an export-rated model during the late 1980s to the rules of the WTO. As of today, it has an annual production of over 2 million vehicles, of which half is exported ( Thailand Board of Investment, 2023).
• Indonesia: Indonesia was struck by the Asian financial crisis in 1997, and since then, it has adopted IMF recommendations, which have opened its auto industry. It is currently producing 1.4 million vehicles annually, and it exports almost 500,000 cars in a year (Gaikindo Indonesian Automotive Industry Association).

In comparative terms, Pakistan is lingering on a production of only 150,000 vehicles per annum and has a very low output as exports (PAMA, 2024). Discontinuous policies, weak localization practices and devotion to a few assemblers have made the industry susceptible to external shocks.

Wider Implications: What This Means for Consumers, Manufacturers, and the Government

On the consumer level, the price of the imported vehicles might experience a high price level in the short term, which is likely to cause angst. But after 2026, there is potential to see a new age of new, affordable and safer cars with greater fuel efficiency.

The situation is critical to the manufacturers: they have to invest in innovations and in increasing localization efforts, and emphasize production to export; otherwise, they will be overwhelmed by the other players as tariff barriers finally come down.

To the government, it is necessary to navigate the intricacies of IMF reforms.

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