Govt Announces New Tax on Used Car Imports in Pakistan
The government of Pakistan has introduced a 40% new tax on used car imports, effective from late 2025. This policy will directly impact importers, local car assemblers, and millions of consumers looking for affordable alternatives in the auto market. While the new tariff seems steep, it is not permanent. The duty will gradually decline by 10 percentage points each year until it is phased out by 2030.
This decision comes under pressure from the International Monetary Fund (IMF) and is part of Pakistan’s broader move from protectionism to liberalization. For car buyers, this means short-term price hikes but potentially cheaper, safer, and more diverse options in the coming years.
In this guide, we break down the new tax policy, industry reaction, government stance, historical lessons, and consumer impact. We’ll also compare Pakistan’s approach with regional markets like India, Thailand, and Indonesia — all of which faced similar reforms.
What Is the New Tax on Used Car Imports?
The federal government has approved a 40% import duty on the commercial import of used cars.
- Implementation date: September 30, 2025
- Scope: Applies to all commercial imports of used vehicles under five years old.
- Phase-out plan: Tariff will drop by 10% every year until it reaches zero by 2030.
- Restrictions: Cars involved in accidents or failing basic safety/environmental standards will not be allowed.
👉 In short: This is a temporary tax shield meant to protect local assemblers until the National Tariff Policy (NTP) 2025–2030 kicks in.
Why Is Pakistan Imposing New Tax on Used Car Imports?
1. IMF Commitments
Pakistan is under strict conditions from the IMF to open its auto market. The country has long protected its struggling car industry with high tariffs and import bans. The IMF wants these barriers dismantled to encourage competition and consumer benefits.
2. Government Revenue Pressure
Pakistan’s auto sector contributes billions in annual tax revenue. With sales declining and imports rising, the government hopes the 40% duty will provide a short-term revenue cushion.
3. Local Industry Protection
Local manufacturers like Suzuki, Toyota, and Honda have stagnated at 150,000 units per year since 2004. Without temporary protection, they risk collapse when imports surge.
Breakdown of the 2025–2030 Tax Schedule
| Year | Import Duty on Used Cars | Policy Goal |
|---|---|---|
| 2025 | 40% | Initial shield for local assemblers |
| 2026 | 30% | Gradual liberalization begins |
| 2027 | 20% | Duty reduction continues |
| 2028 | 10% | Almost open market |
| 2029 | 5% | Minimal protection |
| 2030 | 0% | Full market liberalization |
👉 Key takeaway: By 2030, Pakistan will have one of the most open auto markets in South Asia.
Industry Reaction: Strong Opposition
The Pakistan Automotive Manufacturers Association (PAMA) and local car assemblers have criticized the new tax plan.
- Job losses: Over 2 million jobs at risk.
- Revenue decline: Rs. 878 billion in industry income may vanish.
- Tax shortfall: Government revenue could fall by Rs. 302 billion.
- Imports vs. local: Lower duties have already eroded demand for locally assembled cars.
Industry leaders warn that Pakistan may face an “existential crisis” in auto manufacturing unless serious reforms are introduced.
Government’s Position: A Balancing Act
Officials from the Commerce Ministry argue that:
- The tax is a temporary buffer, not a permanent tariff.
- Pakistan must honor IMF conditions to keep loans and financial support flowing.
- Long-term benefits of liberalization — lower prices, more choices, higher safety standards — will outweigh short-term challenges.
👉 In contrast, local assemblers believe this policy favors importers and traders over domestic production.
Policy Context: A Clash of Two Strategies
Pakistan’s decision sits between two overlapping policy frameworks:
1. Auto Industry Development and Export Policy (AIDEP) 2021–2026
- Focus: Localization, exports, domestic growth
- Relies heavily on protectionism
- Ends in June 2026
2. National Tariff Policy (NTP) 2025–2030
- Focus: Simplification and liberalization
- Reduces tariff slabs to 0%, 5%, 10%, and 15%
- Ends Additional Customs Duties (ACDs) and Regulatory Duties (RDs)
👉 The 40% duty is a stop-gap measure until the NTP officially begins in July 2026.
Regional Lessons: What Pakistan Can Learn
Pakistan is not the first country to liberalize under IMF/WTO pressure.
India (1990s–2000s)
- Opened auto sector post-1991 crisis.
- Enforced localization targets.
- Now produces 4.7 million vehicles annually, world’s 4th largest market.
Thailand (1980s–1990s)
- Shifted to export-led growth.
- Nicknamed “Detroit of Asia”.
- Produces 2 million vehicles annually, half exported.
Indonesia (Post-1997 Asian Crisis)
- IMF-led reforms opened the market.
- Now produces 1.4 million vehicles annually, exporting nearly 500,000 units.
Pakistan (2025)
- Still stuck at 150,000 units/year.
- Exports negligible.
- Policy inconsistency and overdependence on few assemblers keeps growth stagnant.
Impact on Consumers
Short-Term (2025–2026)
- Higher prices due to 40% import duty.
- Imported cars remain unaffordable for most buyers.
- Locally assembled cars keep their monopoly.
Medium-Term (2027–2029)
- Prices decline as duties fall.
- More choices of used cars from Japan, Korea, Europe.
- Competition pressures local assemblers to improve quality.
Long-Term (2030 and beyond)
- Cheaper, safer, fuel-efficient cars available.
- Pakistan may attract foreign automakers.
- Consumers finally benefit from a competitive auto market.
Impact on Local Assemblers
- Must increase localization to survive.
- Need to innovate and cut costs.
- Without exports, they risk collapse when tariffs reach zero.
👉 Example: India succeeded because it exported aggressively. Pakistan has almost no auto exports, leaving it vulnerable.
Broader Economic Implications
- Government: Gains short-term revenue, risks long-term industry shrinkage.
- IMF: Ensures Pakistan dismantles protectionist barriers.
- Industry: Faces existential risk unless it reforms.
- Consumers: Short-term pain, long-term gain.
Expert Insights and Data
- PAMA (2024): Pakistan’s auto production stagnant since 2004.
- Engineering Development Board (EDB): Calls for deeper localization.
- FBR (2025 National Tariff Policy): Duty slabs to simplify to 0–15%.
- International Case Studies: Countries that liberalized under IMF saw higher exports and growth within 10–15 years.
How Vehicle Buyers Should Prepare
- Delay non-urgent purchases until duties decline in 2026–2027.
- Watch excise department updates for revised fee schedules.
- Compare imported vs. local options annually.
- Check safety standards before buying imported vehicles.
Pros and Cons of the New Tax on Used Car Imports
✅ Pros
- Encourages competition.
- Brings cheaper cars in long run.
- Aligns Pakistan with global markets.
- Forces local assemblers to improve.
❌ Cons
- Higher prices in short term.
- Risk of local industry collapse.
- Millions of jobs at stake.
- Heavy reliance on IMF dictates.
Conclusion: Crisis or Opportunity?
The 40% new tax on used car imports is not a permanent barrier but a transitional tool. For now, it gives local assemblers breathing space. But after 2026, Pakistan’s auto industry will face its biggest test: adapt or collapse.
If countries like India, Thailand, and Indonesia could turn IMF liberalization into growth, Pakistan can too. The real question is whether policymakers and manufacturers are ready to seize this chance — or whether the sector will remain stuck in a cycle of protection and stagnation.
FAQs About New Tax on Used Car Imports
1. What is the new tax on used car imports in Pakistan?
The government has imposed a 40% duty on commercial imports of used cars starting in September 2025.
2. Will this tax remain permanent?
No. It will reduce by 10% each year and phase out completely by 2030.
3. Why is the government imposing this tax?
Mainly to meet IMF conditions, protect local assemblers temporarily, and raise short-term revenue.
4. How will this affect car prices?
In the short term, prices will rise. But after 2026, as duties fall, imported cars may become cheaper and more available.
5. Which cars are banned from import?
Any accident-involved vehicles or those not meeting basic safety and environmental standards.
6. What should car buyers do now?
If possible, wait until 2026–2027, when duties decline and more options open.
7. What does this mean for local car companies?
They must innovate, localize, and explore exports — otherwise, they risk losing to imports after tariff walls fall.
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