ISLAMABAD: The federal government has developed the Auto Industry Development and Export Policy (AIDEP) 2021-2026 with the goal of improving car quality, adding safety features, and making small cars more affordable to Pakistani buyers. The government has proposed a tax exemption for locally produced cars with engines up to 800cc, according to a document issued by the Ministry of Industries. Under the new auto policy, the Ministry of Industry has recommended ending additional customs duty on small cars, excise duty on locally assembled cars and withholding tax on cars with engine capacity up to 800cc. The draft, released by the Engineering Development Board of the Ministry of Industries and Production, also recommended decreasing import duty on electric vehicles in order to encourage people to use environment-friendly EVs. As per the Auto Policy 2021-2026, the import duty on electric vehicles will be reduced from 25% to 10% for one year. The board has also decided to reduce the regulatory duty on CBU import of hybrids (15% for above 1,800cc, 0% for 1,800cc and below). Salient features of Auto Policy 2021-26: Import duty on Electric Vehicles (EVs) will be reduced to 10% from 25% If the car manufacturer delays the car for over 60 days (2 months), the company will pay KIBOR + 3%. To review tax exemption on imported vehicles every year. Car manufacturers to set a 10% export target by 2026. Tax incentives for export of vehicles and spare parts. Customs duty on spare parts for electric vehicles fixed to 1%. Customs duty on CBU imports of electric vehicles reduced from 25 to 10 percent. One per cent of customs duty will be levied on electric parts of motorcycles. To reduce sales tax on hybrid electric vehicles to 8.5%. Regulatory duty on the import of hybrid CBU will be reduced. Regulatory duty on hybrid vehicles above 1800 cc will be reduced by 15%. Ban on locally manufactured/imported vehicles after June 30, 2022, which is not compliant with shortlisted WP 29 regulation.