Pakistan Auto Policy Hits IMF Roadblock Over Controversial EV Tax Break

ISLAMABAD: Long-delayed Pakistan auto policy hit another wall this week. Talks with the International Monetary Fund on the draft Auto Policy 2026-31 ended without agreement after the lender objected to several of its provisions, official sources said on Friday.

The sources did not name the provisions that drew the Fund's objections. One proposal in the draft, though, already has a history with the IMF.

The draft offers battery electric, plug-in hybrid and range-extended electric vehicles a 1 percent sales tax and an exemption from federal excise duty, Focus Pakistan reported. The IMF has seen that figure before. In June, it turned down a government proposal for a 1 percent sales tax on new energy vehicles and 9 percent on hybrids. The Fund wanted the standard 18 percent rate across the board, with any price relief delivered through direct subsidies.

Three months on, the 1 percent rate sits in the draft again.

What the draft promises buyers

Cheaper cars sit at the heart of the plan. The Ministry of Industries and Production submitted its final draft to the IMF, the sources said. It cuts customs duties on conventional vehicles by up to 80 percent over five years, with taxes falling gradually from 2026 under the National Tariff Policy. Promoting electric vehicles ranks among its central objectives.

Also Read: Pakistan Auto Sales Surge, But Policy Vacuum Threatens Growth Ahead

EV buyers would gain more than a tax cut. The draft sets a 1 percent customs duty on charging stations and related parts, stretches EV financing from three years to five, and could lift the financing ceiling to Rs10 million.

Regular hybrids lose out. A draft document seen by Focus Pakistan in September ended existing sales-tax concessions for hybrids while offering a 1 percent rate on parts for locally built electric vehicles.

Prime Minister Shehbaz Sharif approved the initial draft in September and asked officials to revise itThat nod carried no legal force. Three more stops lie ahead: the IMF, the Economic Coordination Committee, then the federal cabinet. Until all three sign off, no duty or tax moves.

Three days to fix it

The government now plans to brief the ECC and the federal cabinet on the Fund's concerns, the sources said. Officials also briefed the IMF on proposals aimed at bringing vehicle prices down. They will rework the draft with local automakers and importers and send it back to the Fund within three days. PakWheels reported a target of October 7 for finalisation.

Also Read: Why Doesn't the IMF Want Cheaper Small Cars in Pakistan?

That timeline looks tight. The Auto Industry Development and Export Policy 2021-26 expired on June 30. Its replacement slipped from July to August, and now into October. In June, disagreements among the ministries drafting the policy over its duty structure added to the delay, The Express Tribune reported.

The auto policy forms one strand of Pakistan's wider engagement with the IMF under its 37-month, $7 billion Extended Fund Facility. Fuel opened a second front this week. Petrol sits at the centre of it. By the Fund's math, as The Express Tribune reported it, fuel lands at roughly Rs250 a litre, then taxes and margins push the pump price to about Rs390. A proposed Rs1.4 trillion write-off of gas company receivables has the two sides deadlocked as well.

Carmakers fear one tax paying for another

Automakers have warned about how the tax burden gets shared. Lucky Motor Corporation's chairman, Muhammad Ali Tabba, raised the point back in June. Sales tax and excise duty, he argued, should not let one technology prop up another, whether petrol, plug-in hybrid, electric or range-extender.

Ask an automaker what next year's duty rates look like, and nobody can say yet. Taxes, localisation rules, incentives: all still open. Importers sit in the same spot, planning around a policy nobody has signed.

For buyers, nothing changes yet. No duty, tax or import rule from the new policy has taken effect. Showroom prices will hold until Islamabad and the IMF settle whose numbers win.