- Electric vehicles supported by fiscal incentives and policy changes will reshape Pakistan’s auto industry
Perspective of Mr. Shafiq Ahmed Shaikh, automobile consultant and expert
Pakistan & Gulf Economist approached Mr. Shafiq Ahmed Shaikh, automobile consultant and expert, for his perspective on the Federal Budget for 2025-26. Following are the excerpts:
In 2024, the global economy entered a stabilization phase following unprecedented shocks in recent years. Labor markets have largely normalized, with employment and vacancies returning to levels observed prior to the Covid-19 pandemic.
Looking ahead, global economic growth, which is estimated at 3.3 percent in 2024, projected to moderate to 2.8 percent in 2025, before recovering slightly to 3.0 percent in 2026. This projected deceleration is attributed to cyclical headwinds and structural realignments within global trade. The rise of tariffs and increased uncertainty negatively impact business sentiment and disrupt supply chains. In advanced economies, on average, growth is expected to decline from 1.8 percent in 2024 to 1.4 percent in 2025, with a modest recovery anticipated thereafter.
Emerging markets and developing economies are projected to witness a decrease in growth, estimated at 3.7 percent in 2025, followed by a slight increase to 3.9 percent in 2026. A significant reordering of policy priorities presents downside risks to the global economic trade outlook for 2025.
According to the IMF, global trade volume grew by 3.8 percent in 2024. It is projected to decelerate to 1.7 percent in 2025 amid tariff-related uncertainty, before recovering to 2.5 percent in 2026. Trade-related uncertainties have reached unprecedented levels, with their long-term implications expected to differ across economies based on their susceptibility to protectionist measures, financial integration, and geopolitical factors.
The industrial sector posted a growth of 4.77 percent. Manufacturing growth was also positive despite a slow recovery in large-scale manufacturing, supported by gains in small-scale manufacturing and slaughtering. During July-March FY 2025, Large-Scale Manufacturing (LSM) experienced a contraction of 1.47 percent, in contrast to a slight decline of 0.22 percent observed in the corresponding period of the previous year. This marks the third consecutive year of negative growth in LSM, which can be attributed to ongoing structural challenges, elevated input costs, and downturns in critical sectors, it is noteworthy that nearly half of the LSM sectors demonstrated positive growth, including significant industries such as wearing apparel, textiles, coke & petroleum products, pharmaceuticals, and automobiles.
Looking ahead, global trade growth is anticipated to be around 2.7 percent in 2025 (WTO). Pakistan’s strategic emphasis on enhancing exports, diversifying trade, and maintaining macroeconomic stability will be crucial in addressing the external challenges.
Pakistan’s trade recovery hinges on structural improvement; sustaining the momentum necessitates a transition from short-term solutions to long-term, reform-oriented policies. The focus will remain on diversifying exports, improving supply chains, rationalizing import tariffs, and strengthening trade infrastructure to bolster global competitiveness. The Large Scale Manufacturing (LSM) sector exhibited a mixed trend during the first nine months of the outgoing fiscal year, reflecting resilience following a period of high inflation.
Notably, the automobile and export-oriented industries showed encouraging performance. This trend underscores positive growth expectation ahead supported by stable inflation and a policy rate approaching single digit. With reference to auto sector, in my opinion, it is very good that International Monetary Fund (IMF) shows its interest in the auto sector matters and now this segment issues and problems will not only highlighted but I hope that solutions will come on the long term basis.
The IMF’s suggestion for reduction in duties on a gradual basis is game changer for auto industry. As per policy makers this specific point not only to reduce trade barriers on international basis but also simplify customs procedures, including the phased elimination of additional customs duties (ACDs) and an 80% reduction in regulatory duties (RDs) and will also gradually reduce the weighted average tariff from 10.6% in FY25 to 7.4% by FY30, so these tariff cuts will reduce protection to the auto industry along with reduction of the cost of vehicles, export enhancement will happen and increase in their affordability is expected.
In my opinion, it is a very sensitive point for industry, this point must be discussed with the auto industry and stakeholders for good, long-term, and acceptable solutions to industry.
This budget with reference to the auto sector seems balanced, the recommended national tariff program with the complete and detail plan is good for Pakistan and requirement of today.
As I foresee that by gradually lowering import duties, in future it will not only stabilize with the local and international markets but also have to be
competitive with the global industry. It will also help in arrangements of good FTA’s, PTA’s and further exports.
In my opinion, under the proposed tariff, the duties would come down to 15% from the current 20% over five years. Whereas Additional Customs Duty (ACD) and Regulatory Duty (RD) will also be phased out. The government also plans to eliminate the fifth schedule and lower the maximum slab rate to 15%. This is a good overhauling of the trade regime and definitely will foster export-led growth.
In my view, this was also the requirement of IMF, which seeks to bring Pakistan’s tariff structures in line with global norms. In my opinion, now through these revolutionary changes, not only policy stabilization will come but also easy access to be open with international supply chains.
At present, this sector contributing around 4% of total tax revenue, I foresee that by taking these tariff rationalization, more revenue will generate. Yes, the tariff reduction must be held on nearby and regional countries competition with power, gas, interest rates and taxes.
In my opinion, in the present circumstances and to support the auto industry to reach 500,000 units in a year, it is a good decision from the government that they not permit the reduction in the age of commercial import of used vehicles. Whereas with reference to increase in sales tax definitely the prices of cars will be increased.
Especially on the small vehicles up to 850cc, an increase will affect the lower middle class and middle class customers. As we know, the future is of Electric Vehicles especially from China, so this is the right time that the supporting, sustainable, and long term policies and incentives for Electric vehicles and their accessories must also be introduced for good investments, sustainable EV industry and more jobs in Pakistan.
At present in Pakistan’s electric vehicle (EV) ecosystem is steadily gaining momentum under the Automotive Industry Development and Export Policy 2021-2026 and to date, 57 manufacturers have been granted licenses for producing electric two- and three-wheelers, supported by fiscal incentives, tax exemptions, and reduced charging tariffs aligned with the government’s ‘Clean Green Pakistan’ and ‘Make in Pakistan’ initiatives.
According to the Economic Survey FY25, 13 new manufacturing certificates were issued, and production of EV two- and three-wheelers reached 32,923 units, taking the total production since FY22 to 76,979 units. Furthermore, in my opinion that in next couple of years the sales of ICE vehicles will decrease due to introduction of electric cars which have more features, different choices, excellent affordability, good mileage and easy access to charging stations.
In next coming few years there is a brilliant revolution of electric cars, charging stations and their complete infrastructure and then definitely the electric cars will also be available on good installments through banks and financial institutions.