PAAPAM proposes rationalised tariff structure
RECORDER REPORT
ISLAMABAD: The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) has proposed a rationalised tariff structure for the upcoming Auto Policy 2026-31, seeking higher duties on completely built units (CBUs) and localised parts to protect domestic manufacturing, while maintaining minimal or zero duty on raw materials.
In its position paper submitted for consideration in the formulation of the Auto Policy 2026-31, PAAPAM urged the government to conclude the issue of auto-sector import tariffs in line with industry proposals aimed at promoting localisation, export competitiveness, investment, employment and sustainable industrial growth.
PAAPAM, representing more than 300 member companies and around 1,200 firms across the automotive ecosystem, said the sector generated around 300,000 direct jobs and supported a further 1.5 million indirect livelihoods. The sector comprises 13 local car assemblers, more than 50 motorcycle and e-bike assemblers, 10 truck/bus assemblers and three tractor assemblers.
The association also sought a hearing with Prime Minister Shehbaz Sharif before the new policy is finally approved and implemented.
PAAPAM said the National Tariff Policy 2025-30, by reducing import tariffs to a maximum of 15 percent without adequate consideration of sectoral dynamics, posed serious risks to the auto and auto-parts industry.
According to the association, the sector faced an estimated 34 percent structural cost disadvantage arising from energy tariffs, financing costs, taxation, freight, certification and logistics inefficiencies.
It said domestic car volumes remained stagnant at approximately 2005 levels due to sluggish economic growth, while the market remained fragmented across 13 car assemblers and more than 40 models. At the same time, policies encouraging used-car imports and inconsistent restrictions on completely knocked down (CKD) kits had further eroded competitiveness.
PAAPAM recalled that when the government phased out the mandatory Deletion Programme in 2006 in favour of a Tariff-Based System (TBS), the association and auto-parts vendors accepted the change on the understanding that future policies would remain focused on localisation.
It argued that a viable TBS must take into account local manufacturing inequalities, scale limitations, raw-material import costs and structural cost disadvantages to ensure fair competition.
Under its proposed tariff framework, PAAPAM has recommended 50 percent duty on CBUs, 40 percent on localised parts, 30 percent on CKD, 5 percent on locally produced raw materials and zero duty on imported raw materials.
The association said its proposed 40 percent tariff on localised parts was intended to create a strong deterrent for assemblers importing parts from China, Korea and Japan.
“Experience from the two auto policies of the last 10 years has demonstrated that, at a tariff of 25 percent, new assemblers preferred to import parts in CKD kits and avoided to localize them,” PAAPAM maintained.
It said new assemblers had achieved only 0-10 percent localisation, whereas legacy assemblers had localised parts when tariffs were maintained at a higher level of 45 percent.
PAAPAM also identified auto-parts exports as a major opportunity, saying the sector could realistically target $1 billion in exports, provided policy support was aligned with the export gestation cycle of engineering products and components.
It proposed a low-cost financing scheme for auto-parts and component exports and sought permission for manufacturers to qualify for exporter classification at 25 percent exports instead of the existing 80 percent threshold, with an incremental export growth target over a 5-10 year period.
The association also called for revision of State Bank of Pakistan foreign-exchange remittance rules by extending the export-realisation period from 180 days to 365 days, arguing that auto-parts research and development and contract-completion cycles required longer gestation periods.
