The government of Pakistan has announced a major policy shift in the auto sector. Starting next month, accidental and low-quality used cars will no longer be allowed into the country. At the same time, a 40% tariff on commercial imports of used vehicles will be enforced. Officials say the move is meant to protect Pakistan’s local auto industry, which has long pushed for higher safeguards against foreign competition. However, for consumers, this decision means that car prices in Pakistan are unlikely to see any relief anytime soon.
Why the Ban on Accidental and Low-Quality Cars?
The decision to ban accidental cars and low-quality used imports comes after years of complaints from the local auto industry. A large portion of imported vehicles arriving under schemes like transfer of residence, baggage, and gift are slightly damaged or previously used in foreign countries. Despite their condition, many Pakistani buyers prefer them because they are often cheaper and better equipped compared to locally assembled cars. But now, the government has drawn a strict line: no accidental cars will be allowed into the Pakistani market.
40% Tariff on Used Car Imports
Along with the ban, a 40% tariff on imported used cars will take effect next month. According to Mohammad Ashfaq, Joint Secretary for Trade Policy, this tariff is part of Pakistan’s commitments under the IMF bailout program. This means that when commercial imports of used cars (up to five years old) become legal in September, they will be subject to this heavy duty. In simple words, a car worth $10,000 abroad will cost around $14,000 in Pakistan just because of the tariff—before even adding other taxes.
Will Car Prices in Pakistan Go Down?
The short answer: No, not for now. Local car prices are already high in Pakistan, and consumers were hoping that trade liberalization would help bring costs down. However, the new tariff means that imported cars will remain expensive. Local assemblers argue that government taxes and duties—ranging from 30% to 61% of the retail price—are the real reason cars are so costly. Until these high taxes are reduced, prices are unlikely to drop, regardless of import policies.
IMF Conditions and Pakistan’s Auto Sector
Under the $7 billion IMF bailout package, Pakistan has agreed to gradually open up the auto sector to imports. From September 2025, commercial imports of used cars up to five years old will be permitted. By July 2026, age and quality restrictions will be lifted, and cars as old as eight years could be imported. To balance this, the 40% tariff will be gradually reduced to zero over four years. This means that while cars will remain expensive in the short term, the market could eventually open up and offer more affordable options.
Reduction in Overall Tariffs
Another key IMF condition is that Pakistan must reduce its overall tariff regime. Currently, the average tariff is 20.2%, but it will have to be brought down to 9.7% within five years. Here’s how the reduction will work:
- In FY26, tariffs will fall to 15.7% (a 22.3% cut).
- Customs duty will be reduced to 11.2%.
- Additional customs duty will fall to 1.8%.
- Regulatory duty will drop to 2.7%.
All additional duties will be phased out over the next four to five years. This could eventually make imports cheaper, but for now, local buyers will still feel the pinch.
Impact on Local Auto Industry
The Pakistan Automotive Manufacturers Association (PAMA) and the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) are lobbying against these IMF-driven reforms. Their main concern is that once tariffs are lowered and imports are freely allowed, local car assemblers and parts manufacturers will struggle to compete. They argue that Pakistan’s auto industry employs thousands of people and contributes significantly to the economy. If cheaper imported vehicles flood the market, local manufacturers may lose their customer base.
Consumers Caught in the Middle of 40% Tariff on Used Cars in Pakistan
While the government tries to balance IMF conditions and industry demands, consumers are the ones most affected.
- Imported used cars will remain expensive due to the 40% tariff.
- Local cars are already overpriced because of high government taxation.
- Choice and variety remain limited in Pakistan compared to other countries.
This means buyers looking for affordable, reliable cars may not see any immediate benefit from these policy changes.
Impact of 40% Tariff on Used Cars in Pakistan
Looking forward, here are some likely outcomes of this policy shift:
- Short Term (2025–2026): Car prices will stay high due to the new tariffs and existing taxes.
- Medium Term (2026–2028): As tariffs gradually reduce, more imported cars (including older models) will enter the market. Prices may start to stabilize.
- Long Term (Beyond 2028): Once tariff reductions are fully implemented, consumers could finally enjoy more affordable options and greater variety in the auto market.
Conclusion
The government’s move to ban accidental used cars and impose a 40% tariff on imports shows its commitment to protecting local car manufacturers while meeting IMF conditions. For now, however, car buyers in Pakistan should not expect any price cuts. Local taxation remains high, and imported cars will carry additional duties. The real test will come in the next few years, as Pakistan gradually reduces tariffs and opens its auto market further. Until then, consumers remain stuck between expensive local options and costly imports.
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