KARACHI: Pakistan is proposing to cancel automakers’ manufacturing certificates if they miss export targets for two consecutive years, according to draft documents reviewed by Arab News, as it targets $6 billion in auto exports over five years.

The proposed Automotive and Auto Parts Manufacturing Policy 2026–2031 would set minimum export targets for vehicle assemblers and parts makers. Pakistan’s auto sector currently exports around $190 million to $200 million a year, according to the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).

The $6 billion goal covers combined vehicle and parts exports over the five-year period, according to a review the Ministry of Industries and Production presented to Prime Minister Shehbaz Sharif this week. It is a target for the sector as a whole, rather than an annual requirement for each manufacturer.

“Failure to meet export targets for two consecutive years will result in cancelation of manufacturing certificate,” the documents said.

Companies missing minimum export targets would also face penalties of 1 percent to 3 percent of their annual production value, according to the documents.

To encourage exports, the draft proposes reimbursing exporters for some taxes and levies.

“An exporter will get 5 percent compensation of net FOB (Free-On-Board) value of exports as DLTL (Drawback of Local Taxes and Levies),” the documents said. Exporters would receive an additional 10 percent on incremental exports if their annual exports grew by more than 5 percent.

The government plans to fund incentives through an Automotive Development Levy on petrol, diesel and hybrid vehicles with engines above 1,000cc. The levy would also finance upgrades for parts makers, technology transfer, vehicle testing, research and certification.

The policy sets minimum targets for locally produced content in vehicles. Manufacturers missing those targets would lose export incentives and concessions on imported parts that are not made locally.

It proposes sales tax rates of 1 percent for battery electric vehicles, 6 percent for range-extended electric vehicles and 9 percent for plug-in hybrids, covering both locally assembled and imported models.

“NEVs (New Energy Vehicles) are encouraged preferentially vis-à-vis ICE vehicles by giving a reduced rate of sales tax,” the documents said.

The draft also proposes lower import tariffs for electric vehicles priced below $15,000 during the policy’s first two years, reduced duties on electric vehicle parts and higher financing limits.

“Exports will not go up just by setting up a target,” PAAPAM Chairman Abdul Rehman Aizaz told Arab News. He confirmed that the $6 billion goal covered exports of vehicles and parts by assemblers and parts makers.

Aizaz cited security concerns, limited free trade agreements with potential markets, high energy and financing costs, taxation and difficulties attracting foreign buyers for factory inspections and quality audits.

“Pakistan’s geopolitical security constraints deter foreign buyers to visit Pakistan for factory evaluation, quality audits and dispute resolution,” he said.

Pakistani parts makers say they face a 34 percent structural cost disadvantage because of utility, financing and tax costs. Aizaz said the lack of strategic trade agreements also limited access to markets in Africa, Central Asia and South America.

“The exporters from Pakistan receive no financial rebates or support from the government unlike other countries in the region,” he said.

Pakistan Automotive Manufacturers Association Director-General Razi ur Rehman declined to comment until “things have settled down.”

An official at a major Japanese automaker was skeptical of the proposed target.

“This $6 billion export target does not reflect a very well-thought-out policy approach and is simply unachievable,” he told Arab News, requesting anonymity because he was not authorized to speak publicly.

He said imports of new and used vehicles were reducing domestic manufacturers’ market share and denying them the scale needed to lower production costs.

“It is highly unlikely that Pakistani automobiles can compete with Indian and Chinese automobiles,” the official said.

Shahzad Ali, a spokesperson for the Ministry of Industries and Production, said the government had consulted industry representatives, including PAAPAM and the Pakistan Automotive Manufacturers Association, while drafting the policy.

“Everything is decided after the consultation with private stakeholders,” Ali said.

He declined to confirm whether the draft had been sent to the International Monetary Fund for review.

“The PM office will issue the news,” he said.

Aizaz said Sharif had approved the draft on Oct. 20 for consultation and IMF review.

“After IMF approval, the policy will be presented to the ECC, cabinet and National Assembly for approval,” he said.