July 1, 2025
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In 2025, Pakistan introduced a transformative car import policy, effective from September 2025, that significantly reshapes the automotive landscape. This policy, aligned with International Monetary Fund (IMF) recommendations, allows the import of used vehicles up to five years old, replacing the previous three-year limit for passenger cars. With a focus on liberalizing trade, reducing tariffs, and promoting electric and hybrid vehicles, the policy aims to enhance consumer choice and market competition.
Starting September 2025, Pakistan permits the import of used vehicles up to five years old for both commercial and personal schemes, a significant shift from the previous restriction of three years for cars and five years for other vehicles. From July 1, 2026, the age limit will be entirely lifted, though strict quality standards will remain mandatory. This change aims to address the demand-supply gap for affordable vehicles, as only 9% of Pakistani households can afford new cars, according to the 2023 census.
The 2025 policy introduces a phased reduction in import duties. Used vehicles imported after September 2025 face a 40% additional regulatory duty on top of existing customs duties, which will decrease by 10% annually until eliminated by July 2029. Depreciation allowances, set at 1% per month up to a maximum of 50%, further reduce the tax burden based on the vehicle’s age. For instance, a two-year-old car with a capacity of up to 1,300cc incurs duties as low as 2% under certain conditions.
Under the Electric Vehicle Policy 2020–2025 and the Auto Industry Development Policy 2021–2026, Pakistan offers significant tax incentives for electric vehicles (EVs) and hybrids. EVs enjoy 100% duty exemptions, while hybrids benefit from a 50% reduction in duties, making models like the Toyota Prius and Honda Fit Hybrid more affordable. These incentives align with Pakistan’s goal of achieving 30% EV adoption by 2030.
The Pakistan Single Window (PSW) system, introduced in 2025, streamlines customs clearance, making the import process more transparent and efficient. Importers must use authorized banking channels for payments in foreign exchange, ensuring compliance with regulations. This digital overhaul reduces delays and enhances accessibility for both commercial and individual importers.
The policy retains three import schemes for overseas Pakistanis: Baggage Scheme (180 days abroad in the last 7 months), Gift Scheme, and Transfer of Residence (700 days abroad in the last 3 years). Disabled persons can import one duty-free vehicle (≤1,350cc) with government approval. Only right-hand drive (RHD), non-accident vehicles from Asian manufacturers, such as Japan, are permitted.
Japanese used cars, particularly models like the Toyota Vitz, Aqua, Prius, and Honda Fit, have long dominated Pakistan’s import market due to their affordability, fuel efficiency, and compatibility with the country’s RHD system. In 2024, approximately 65,000 Japanese vehicles were imported, and the relaxed age limit is expected to boost this number significantly in 2025. The policy’s alignment with Japan’s zero-tariff export framework and the strengthened PKR-to-yen rate make Japanese cars more affordable, with consumer confidence driving record showroom visits.
The extended five-year age limit allows importers to access newer models with advanced features, such as hybrid technology and safety systems, at lower costs. For example, a 2020 Toyota Prius, previously ineligible, can now be imported with reduced duties, appealing to Pakistan’s fuel-conscious consumers amid rising petrol prices (projected to increase by Rs. 27/liter from July 2025). This policy shift caters to the 91% of households unable to afford new cars, making Japanese used vehicles a preferred choice.
While the policy liberalizes imports, the 40% additional regulatory duty until 2029 may temporarily deter some commercial importers. For instance, a 1,800cc Japanese car under the Baggage Scheme incurs a duty of $27,940, reduced by depreciation but still significant. This could limit the influx of higher-engine-capacity vehicles, though hybrids and EVs remain attractive due to lower duties.
The liberalized policy has revitalized the car import sector. Companies like Nazar Japan Motors and SBT Japan report increased demand for auction-grade Japanese vehicles, supported by improved access to maintenance services and parts for Toyota, Honda, and Nissan models in major cities. The policy’s transparency and digital clearance processes have also reduced operational hurdles, encouraging new entrants into the import market.
Local automakers, such as Indus Motor Company (Toyota), Honda Atlas, and Pak Suzuki, face heightened competition from imported used cars. These manufacturers, holding 75–80% of Pakistan’s market, argue that imported vehicles undermine their sales, especially as Japanese used cars offer superior features at lower prices. The Auto Industry Development and Export Policy (AIDEP) 2021–2026 mandates these companies to export 10% of their import value by 2025–26, a target deemed ambitious by industry experts and met with resistance from Japanese firms, prompting Japan to threaten WTO action. This tension highlights the policy’s dual aim of fostering competition while pressuring local producers to innovate.
The policy aligns with Pakistan’s IMF-backed economic reforms, aiming to boost trade efficiency and consumer access to affordable vehicles. Lower inflation and a strengthened rupee in 2025 have enhanced purchasing power, with the Pakistan Automotive Manufacturers Association (PAMA) reporting a surge in automotive sales. The phased duty reductions and EV incentives are expected to lower vehicle prices, benefiting consumers and stimulating economic activity in the auto sector.
The policy has sparked debates. Local manufacturers and some analysts argue that liberalized imports could harm Pakistan’s manufacturing base, which lacks the infrastructure to compete with Japan’s quality and pricing. Critics also highlight the risk of Pakistan becoming a “graveyard” for used Japanese cars, as noted two decades ago, due to Japan’s abundant supply of affordable used vehicles. Additionally, the WTO dispute over export mandates underscores diplomatic tensions, with Japan citing violations of trade rules.
By July 2026, the complete removal of age limits and the phased elimination of additional duties by 2029 will likely make Pakistan a major hub for Japanese used car imports. The National Tariff Policy 2025–2030 aims to further reduce tariffs, potentially aligning taxes for used and new vehicles, which could reshape market dynamics. However, local manufacturers must invest in innovation, such as local engine and transmission production, to remain competitive. The push for EVs, supported by initiatives like Atlas Honda’s electric scooter launch, signals a shift toward sustainable mobility, but rising fuel prices and foreign exchange constraints could pose challenges.
Pakistan’s 2025 car import policy marks a bold step toward liberalizing the automotive market, offering consumers greater access to affordable, high-quality Japanese used cars. While import businesses and consumers benefit from relaxed regulations and EV incentives, local manufacturers face pressure to adapt in a competitive landscape. The policy’s success will depend on balancing consumer benefits with the growth of Pakistan’s auto industry, navigating international trade tensions, and ensuring economic stability. As the market evolves, 2025 stands as a pivotal year for Pakistan’s automotive sector, with Japanese used cars at the forefront of this transformation.
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