Pakistan's carmakers will have to start selling abroad or face real consequences. Under the final draft of the Automotive and Auto Parts Policy 2026 to 2031, approved by Prime Minister Shehbaz Sharif on 20 October 2026, an assembler that misses its export target two years in a row would lose its manufacturing certificate. Smaller misses would cost between 1 and 3 percent of the company's annual production value.
When the first export rules surfaced in September, reports pointed to a 12 percent target and warned of a trade dispute with Japan. The final draft is tougher. Here is how the schedule, the penalties and the rewards are meant to work, and why the industry says the targets may be out of reach.
The export schedule
Reports describing the final draft say assemblers of cars, SUVs, jeeps and double cabin pickups get a grace period in the first year, then a rising obligation measured against the factory gate value of what they produce.
| Fiscal year | Export obligation for assemblers | National export target |
|---|---|---|
| 2026 to 2027 | No obligation | USD 256.6 million |
| 2027 to 2028 | 5 percent of production value | USD 671.8 million |
| 2028 to 2029 | 10 percent of production value | USD 1.11 billion |
| 2029 to 2030 | 15 percent of production value | USD 1.17 billion |
| 2030 to 2031 | 15 percent of production value | USD 2.19 billion |
Over five years the national target adds up to about USD 6 billion, split roughly into USD 2.72 billion of vehicles and USD 3.29 billion of parts. For context, the whole sector exports only about USD 190 million to USD 200 million a year today.
The penalties
- From the 2027 to 2028 year, a manufacturer that misses its target pays a penalty equal to a share of its annual production value
- That share starts at 1 percent and can rise to 3 percent
- Missing the target for two consecutive years results in cancellation of the manufacturing certificate, according to the draft
- Firms that fail local content targets also lose export incentives and concessions on imported parts that are not made locally
For a company producing cars worth Rs 200 billion a year, a 1 percent penalty would be Rs 2 billion and a 3 percent penalty Rs 6 billion. Losing the certificate would mean the end of local assembly altogether, which is why the clause has drawn so much attention.
The government plans binding agreements with each manufacturer. Officials have not yet said how appeals would work or what happens if a global parent company blocks exports from Pakistan.
The rewards
The draft pairs the stick with a carrot through a Duty Drawback of Local Taxes and Levies scheme.
- Exporters get 5 percent of the net value of their exports as a base incentive
- The rate rises to 10 percent on incremental exports when growth tops 5 percent
- Incentives are linked to local value addition, so simply shipping imported kits back out will not count
The money comes from the new automotive development levy on petrol and diesel cars above 1,000cc. Officials estimate it will raise about Rs 232 billion over five years. Our levy explainer shows how much it adds to cars like the Corolla and Fortuner. The draft also plans a Pakistan Automotive Testing Institute so that locally made cars and parts can meet the standards foreign buyers expect.
What the industry says
Parts makers are sceptical. PAAPAM chairman Abdul Rehman Aizaz said exports will not go up just by setting a target. He pointed to security concerns, a lack of free trade agreements, high energy, financing and tax costs, and foreign buyers who avoid audits in Pakistan. He estimates local producers face a cost disadvantage of about 34 percent against regional rivals. The association's wider concerns about tariffs are covered in our PAAPAM tariff report.
An official at a Japanese carmaker, speaking without being named, said the targets are unachievable. The Pakistan Automotive Manufacturers Association declined to comment. A government spokesperson said the industry had been consulted. The association had earlier asked other industries to share their views on the draft.
What it means for car buyers
The export rules do not change your car's price directly, but they matter in three ways.
- The levy that funds export rewards is paid by buyers of petrol and diesel cars above 1,000cc
- Assemblers that cannot export may cut models or exit, which would reduce choice
- Companies that do export at scale should gain volume and could become more competitive at home
What happens next
The draft goes to the IMF for review, then to the Economic Coordination Committee and the federal cabinet. The tax changes need a bill in the National Assembly. Until then nothing in the export schedule is binding. The IMF's earlier view of the policy is in our IMF and auto policy report, and you can follow what each brand sells today on new cars.