Pakistan has agreed with the International Monetary Fund to introduce a new five-year auto sector policy that will gradually reduce tariffs on vehicle imports as part of trade reforms tied to the country’s $7 billion bailout program. Under the planned policy, the weighted average tariff on vehicle imports will be cut from 10.6% to 7.4% over four years by 2030, according to a national daily. In the upcoming 2026-27 budget, the average rate is expected to fall to 9.5% as the first step in that roadmap.

Under the planned policy, the weighted average tariff on vehicle imports will be cut from 10.6% to 7.4% over four years by 2030, according to a national daily. In the upcoming 2026-27 budget, the average rate is expected to fall to 9.5% as the first step in that roadmap.

The move is part of Pakistan’s commitments under the IMF’s Extended Fund Facility, which calls for lower trade barriers and a simpler tariff regime. Officials said the government has also agreed that no new regulatory duty will be imposed on imports.

A new auto policy is expected to take effect from July 1, 2026. It is being prepared by the government and is due to be shared with the IMF by the end of the month, before being presented to the prime minister and federal cabinet for approval.

The policy is expected to reshape the tariff structure for the sector by replacing the current system with four slabs of 0%, 5%, 10% and 15%. Customs duty on completely built-up vehicles is likely to be capped at 15% over the next five years.

Officials say the aim is to promote local manufacturing, increase localization of parts, and bring down vehicle prices, while also aligning Pakistan’s tariff regime with IMF-backed reform targets. By fiscal year 2030, the weighted average tariff for the auto sector is expected to fall to about 6%.

The government and the IMF have also agreed on the gradual elimination of additional customs duties and regulatory duties in the auto sector by 2030. A 40% regulatory duty currently applied to used vehicle imports for the fiscal year 2026 is expected to be reduced over time and eventually brought to zero.

Haroon Akhtar Khan, adviser to the prime minister on industries, said the new policy was at an advanced stage and would be submitted to the prime minister and cabinet before being made public. He said the government had consulted stakeholders to build consensus and would try to strike a balance where differences remained.

Alongside the tariff reforms, the government is also moving to update the regulatory framework for the sector. Officials said the Motor Vehicle Development Act, which would give the Engineering Development Board a legal basis to enforce environmental and safety standards, has already been submitted to parliament and is expected to be approved before the end of June.

The government has also abolished the personal baggage scheme for vehicle imports and tightened conditions for the gift and transfer-of-residence schemes for used cars, in an effort to curb misuse after commercial imports were legalized.

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