The government has agreed to a key International Monetary Fund (IMF) demand to lower trade barriers by reducing effective average import tariffs by one-third over the next five years, The Express Tribue reported.
The move, which aims to increase foreign competition, will bring the average tariff down to 7.1%, with a major focus on liberalising the automobile and minerals sectors.
The trade liberalisation plan also includes the removal of non-tariff barriers in the minerals sector, particularly in resource-rich Balochistan. Authorities believe Free Trade Agreements, especially with China, have led to high regulatory duties, as the government has used them to limit imports.
The tariff reduction is expected to result in an estimated revenue loss of Rs278 billion, but officials anticipate increased economic activity will offset this through higher tax collection. The agreement brings Pakistan closer to securing a Staff-Level Agreement with the IMF, a necessary step before the lender’s Executive Board can approve the release of over $1 billion.
The government has committed to eliminating additional customs duties, cutting regulatory duties by 75%, and withdrawing concessions under the fifth schedule of the Customs Act.
The tariff reduction, which will begin in July, will be implemented under a new National Tariff Policy, with a separate Auto Industry Development and Export Policy set to take effect in 2026.
Pakistan has assured the IMF that the federal cabinet will approve the new tariff policy before the end of June, with changes reflected in the fiscal year 2025-26 budget. The government has also pledged not to introduce new regulatory duties unless essential and to phase out existing duties through a sunset clause.
The auto sector will see the most significant tariff reductions, with weighted average tariffs lowered to 5.6% by 2030. The government plans to remove all additional and regulatory duties on automobiles and rationalise customs duty slabs.
Authorities argue that Pakistan’s overall tariffs are already lower than they appear due to high duties on specific items such as alcoholic beverages. However, auto sector tariffs remain high, with some reaching 196% of a vehicle’s price.
The IMF sought assurances that tariff reductions would continue beyond the programme’s expiration in 2027. In response, Pakistani officials committed to keeping reduced tariffs unchanged for at least three years and using trade liberalisation to drive export-led growth, green initiatives, and technology-intensive industries.
The Commerce Ministry projects that reduced tariffs could increase exports to $47 billion by 2030 and contribute to an economic growth rate of 4.6%. While tariff adjustments are expected to reduce customs duty revenue, the government anticipates a net tax collection increase of Rs1.4 trillion due to higher overall economic activity.
The IMF was also briefed on the tariff-setting process, with officials stating that the Tariff Policy Board is often bypassed by the Federal Board of Revenue (FBR). The new tariff policy will consider factors such as import share, impact on domestic manufacturing, competition levels, and downstream industry effects before adjusting duties.
