Karachi, May 11 (UNI) Pakistan’s local auto industry is facing mounting uncertainty ahead of the FY26 budget, as the government considers tariff reforms under pressure from the International Monetary Fund (IMF). The IMF has urged Islamabad to reduce high duties on vehicles and allow the commercial import of used cars — a move that has alarmed domestic manufacturers and auto parts suppliers.
The IMF argues that Pakistan’s auto sector is overly protected, with taxes and duties on locally produced vehicles exceeding 40%. It says this level of protection discourages competition, inflates prices, and ultimately harms consumers. In contrast, industry stakeholders warn that slashing tariffs and opening the market to used car imports could seriously damage local manufacturing and lead to widespread job losses, Dawn reported.
On 6 May, representatives from the industry met with Prime Minister’s Special Assistant on Finance, Haroon Akhtar Khan, to express their concerns. Khan assured them that the government would not jeopardise local investment and would aim for a balanced approach that includes industry consultation.
However, the situation remains tense. Many local manufacturers have long relied on heavy tariff protection — in some cases, pushing the final price of imported auto parts to nearly double due to duties and profit margins. These added costs are passed on to consumers, who are already struggling with inflation and stagnant incomes.
Auto parts manufacturers, in particular, have operated under extremely high protection — with effective rates reaching up to 98%. For example, a part with a landed price of $100 can cost as much as $198 after 46% customs duty, 18% sales tax, and minimum 15% margins. These additional costs are passed directly onto consumers, who are already struggling with inflation and stagnant wages.
Taking note of these excessive tariffs, the IMF recently urged Islamabad to rationalise them under its latest standby agreement. While the IMF sees this as a necessary reform to boost efficiency and reduce consumer prices, many parts manufacturers, particularly those within the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), argue that any tariff reduction could be disastrous for the industry.
They contend that lowering tariffs without addressing the sector’s underlying inefficiencies could lead to long-term damage, undermining local production and employment.
The broader concern lies in the local industry’s limited ability to adapt. With outdated technology, low production capacity, and little investment in innovation, Pakistan’s auto sector is not well-positioned to compete with more advanced foreign manufacturers. Most firms lack the capital to modernise or scale, and the domestic market is too small to offer sustainable growth without protection.
Pakistan’s auto industry also faces significant challenges beyond tariffs. With outdated technology, limited capacity for innovation, and insufficient capital to compete with foreign manufacturers, local firms are ill-equipped to cope with the pressure of liberalisation.
Analysts warn that without a phased transition and targeted government support, such as financing for upgrades or incentives for localisation, the sector could face serious downsizing. Some manufacturers and parts suppliers may be forced to shut down, leading to job losses and increased reliance on imported vehicles — effectively weakening Pakistan’s industrial base.
While IMF-backed reforms could eventually lead to better consumer options and more competitive pricing, the immediate risk to local industry is substantial. The challenge now is whether the government can strike a balance between fulfilling IMF conditions and safeguarding its struggling domestic auto sector.
UNI ANV RN