Pakistan Announces Tariff Hike on Used Cars, Delays Commercial Imports

Strategic Insights -

The Pakistani government has introduced a new policy to protect the local auto industry by imposing a 40% tariff on commercial imports of used cars from September, while prohibiting imports of accidental vehicles. This decision is part of the country's agreement with the International Monetary Fund (IMF), which aims to reduce import tariffs from 20.2% to 9.7% over five years. The IMF requires Pakistan to allow commercial import of used cars up to five years old from September and remove age and other restrictions entirely from July next year.

Key Takeaways:

  • The Pakistani government will impose a 40% tariff on commercial imports of used cars from September, aiming to protect the local auto industry.
  • The IMFC has required Pakistan to allow commercial import of used cars up to five years old from September and remove age and other restrictions entirely from July next year.
  • The 40% import tariff on used vehicles will gradually be reduced to zero over the next four years.
  • Imports of vehicles aged six to eight years will be allowed, subject to quantity limits and safety standards to prevent environmental hazards.
  • The IMF program requires Pakistan to reduce import tariffs from 20.2% to 9.7% over five years, a 52% decline.
  • Duties on auto sector products covered under the Auto Policy, currently at 35%, will be removed from July 1, 2026.
  • Local assemblers argue that despite trade liberalisation, car prices would remain high due to government taxes ranging from 30% to 61% of the vehicle price.
  • Senator Qadir supported the policy to withdraw protection, citing potential efficiency gains and improved safety standards.
  • Committee members noted that locally produced cars currently have fewer safety features, with only two airbags compared to six in imported vehicles.

Statistics:

  • 40% tariff would be applied on commercial imports of used cars from September.
  • 15.7% rate will be the target for the first year (FY26), achieved by lowering average customs duty to 11.2%, additional customs duty to 1.8%, and regulatory duty to 2.7%.
  • The number of tariff slabs will reduce to four, with a maximum rate of 15%.
  • Current tariff on auto sector products covered under the Auto Policy is 35%.
  • Average customs duty, additional customs duty, and regulatory duty for FY26.
  • Local assemblers claim that 30% to 61% of vehicle price goes towards government taxes.

Sources:

  • The Express Tribune
  • International Monetary Fund (IMF)
  • Pakistan Automotive Manufacturers Association (PAMA)
  • Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM)
  • Senate standing committees on finance and industry