PAAPAM proposes revised tariff framework for Auto Policy 2026-31

The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) has proposed a revised tariff regime for the upcoming Auto Policy 2026-31, calling for higher duties on completely built units (CBUs) and localised components while keeping tariffs on raw materials low or at zero to support domestic manufacturing.

 

In a position paper submitted to the government, PAAPAM urged authorities to finalise the auto-sector tariff structure in line with measures aimed at increasing localisation, improving export competitiveness, attracting investment, creating jobs and supporting long-term industrial growth.

 

The association, which represents more than 300 member companies and around 1,200 businesses across the automotive value chain, said the sector directly employs approximately 300,000 people and supports another 1.5 million indirect livelihoods. Pakistan's automotive industry includes 13 car assemblers, over 50 motorcycle and e-bike assemblers, 10 truck and bus assemblers and three tractor manufacturers.

 

PAAPAM has also requested a meeting with Prime Minister Shehbaz Sharif before the new auto policy is approved and implemented.

 

The association expressed concern over the National Tariff Policy 2025-30, arguing that reducing import tariffs to a maximum of 15% without considering sector-specific conditions could significantly undermine the local auto and parts industry.

 

According to PAAPAM, manufacturers currently face an estimated 34% structural cost disadvantage due to high energy prices, financing expenses, taxation, freight charges, certification requirements and logistical inefficiencies.

 

The association noted that domestic vehicle sales have remained broadly stagnant at levels seen around 2005, reflecting weak economic growth. It also pointed to market fragmentation, with 13 car assemblers offering more than 40 models, while policies facilitating used-car imports and inconsistent restrictions on completely knocked-down (CKD) kits have added to competitive pressures.

 

PAAPAM said the industry had accepted the transition from the mandatory Deletion Programme to a Tariff-Based System (TBS) in 2006 on the understanding that future policies would continue to encourage localisation.

 

It argued that any sustainable TBS should account for differences in local manufacturing capabilities, limited economies of scale, raw-material import costs and other structural cost disadvantages to create a level playing field.

 

Under its proposed tariff structure, PAAPAM has recommended a 50% duty on CBUs, 40% on localised parts, 30% on CKD kits, 5% on locally manufactured raw materials and zero duty on imported raw materials.

 

The association said the proposed 40% tariff on localised parts would discourage assemblers from relying heavily on imported components from countries such as China, South Korea and Japan.

 

PAAPAM maintained that previous experience showed that a 25% tariff on parts was insufficient to encourage localisation, as new entrants continued to import components in CKD kits. According to the association, newer assemblers achieved only around 0-10% localisation, while established manufacturers recorded greater localisation when tariffs were maintained at approximately 45%.

 

The association also identified auto-parts exports as a significant growth opportunity, estimating that Pakistan could potentially reach $1 billion in exports if government policies were aligned with the longer development and export cycles of engineering products and components.

 

To support this goal, PAAPAM proposed a low-cost financing facility for auto-parts and component exporters. It also recommended reducing the export threshold required for manufacturers to qualify for exporter status from the existing 80% to 25%, coupled with incremental export targets over a five-to-10-year period.

 

The association further called on the State Bank of Pakistan to revise foreign-exchange remittance regulations by extending the export-realisation period from 180 days to 365 days. PAAPAM said the longer period would better reflect the research, development and contract-completion cycles involved in the auto-parts industry.