In a major policy shift, the International Monetary Fund (IMF) has urged Pakistan to reduce tariffs on imported vehicles—especially used cars—and gradually remove protectionist measures that favor local car assemblers.
This move is part of broader structural reforms under the IMF loan program, aimed at increasing competition and market efficiency in Pakistan's auto sector.
While this proposal has been welcomed by car dealers and importers, it has raised serious concerns among local manufacturers, who fear the move could harm domestic production and employment.
Currently, Pakistan allows the import of used vehicles only under the gift scheme, with a restriction that the car must be no older than three years. However, the IMF has recommended lifting this restriction to allow imports of cars up to five years old. This could significantly lower the prices of imported used cars and widen consumer choice.
According to the IMF's latest country report, Pakistan’s auto sector is facing "severe trade restrictions" and the removal of tariffs and tax exemptions is essential for leveling the playing field. The report also proposes the gradual elimination of customs duties, additional duties, and regulatory duties on imported vehicles and parts by 2030.
The Pakistani government is currently reviewing its National Tariff Policy (NTP) and is expected to implement new rules by July 2025. The Engineering Development Board (EDB), which oversees the auto sector, has proposed reducing the maximum tariff slab from 20% to 15%, and phasing out additional duties and regulatory duties within four to five years.
Officials have indicated that the government may introduce legislation this year to ease the import of used vehicles and begin reducing tariffs on the auto sector from the next fiscal budget.
The Pakistan Automotive Manufacturers Association (PAMA) has criticized the IMF’s recommendations, warning that reduced tariffs could undermine the local auto industry, which provides jobs to over 3 million people. PAMA Director General Abdul Waheed Khan argued that international automakers like Toyota and Honda are unlikely to support competition from Pakistani-made vehicles in global markets.
He also warned that tariff reductions could decrease foreign exchange reserves and lower government tax revenues, as the auto sector is a significant contributor to the national treasury.
Auto expert Mashhood Ali Khan acknowledged that reduced tariffs could lead to lower vehicle prices due to increased competition. He cited the example of how the influx of Chinese bikes in the mid-2000s led to lower prices and a boom in the market.
However, Khan also warned that only a limited segment of the population would benefit—those already able to afford cars. He emphasized that the local industry is not yet ready to compete globally and that the reforms may result in a higher trade deficit due to increased imports.
According to H.M. Shehzad, Chairman of the All Pakistan Motor Dealers Association, used car imports are among the few areas where the government earns customs revenue in U.S. dollars. He noted that lowering the import age to five years and reducing duties could significantly decrease prices.
For instance, a three-year-old imported car like the Daihatsu Mira costs around $5,000, while a five-year-old model might cost only $2,500—creating potential savings of over PKR 750,000 per vehicle, not counting further reductions due to lower tariffs.
The IMF’s push for liberalizing car imports may lead to cheaper vehicles and greater consumer choice, but it also threatens local auto manufacturing and tax revenues. As Pakistan drafts its new auto and tariff policies, the country faces a delicate balancing act between economic reform, industrial protection, and consumer benefit.
