Auto Policy 2026-31: PAAPAM proposes rationalised tariff structure

The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) has suggested a streamlined tariff system for the forthcoming Auto Policy 2026-31. The proposal calls for elevated duties on completely built units (CBUs) and locally-made parts, aiming to shield domestic production, while keeping tariffs on raw materials at a minimal or zero level.

In the position paper submitted for review during the creation of Auto Policy 2026-31, PAAPAM requested the government to finalize auto-sector import tariff regulations aligned with industry suggestions aimed at fostering localization, export competitiveness, investment, employment and sustainable industrial growth. Representing over 300 member companies and approximately 1,200 firms in the automotive sector, PAAPAM reported that the industry employed around 300,000 individuals directly and supported an additional 1.5 million jobs indirectly.

It comprises 13 local car assemblers, more than 50 motorcycle and e-bike assemblers, 10 truck/bus assemblers, and three tractor assemblers.

PAAPAM urged the government to hold a meeting with Prime Minister Shehbaz Sharif before finalizing the new policy. The National Tariff Policy 2025-30, according to the association, by reducing import tariffs to a maximum of 15 percent without adequate consideration of sector dynamics, could pose a significant threat to the auto and auto-parts industry.

It reported a structural cost disadvantage of approximately 34 percent for the sector due to energy tariffs, financing costs, taxation, freight, certification, and logistics inefficiencies. Stagnant domestic car volumes at about 2005 levels were attributed to slow economic growth, while the market remained fragmented across 13 car assemblers and over 40 models.

PAAPAM recalled that when the government replaced the mandatory Deletion Programme in 2006 with a Tariff-Based System (TBS), the association and auto-parts vendors agreed to the change, expecting future policies would emphasize localization. The association argued that a viable TBS must consider local manufacturing inequalities, scale constraints, raw-material import costs, and structural cost disadvantages to ensure equitable competition.

Under the proposed tariff framework, PAAPAM suggested a 50 percent duty on CBUs, 40 percent on localized parts, 30 percent on CKD, 5 percent on locally-produced raw materials, and zero tariff on imported raw materials. PAAPAM noted that their proposed 40 percent tariff on localized parts aimed to discourage assemblers from importing parts from China, Korea, and Japan.

Experience from the two auto policies over the past decade showed that new assemblers, with a tariff of 25 percent, favored importing parts in CKD kits rather than localizing them. Only 0-10 percent localization was achieved, while legacy assemblers localized parts at a higher tariff level of 45 percent. PAAPAM also identified potential for auto-parts exports, suggesting a target of $1 billion in exports by creating a low-cost financing scheme for auto-parts and component exports, and proposing an increase in the export-realization period from 180 days to 365 days for auto-parts research and development and contract-completion cycles.