Budget 2026-27 to slash import duties as Govt pushes ahead with tariff liberalisation

The government will provide around Rs200 billion in import-duty relief to the industrial sector in the upcoming federal budget as it moves ahead with the second phase of a five-year tariff reform programme aimed at reducing protection levels and improving export competitiveness.

Officials involved in budget planning said Prime Minister Shehbaz Sharif has approved the next stage of the Tariff Reform Plan 2025-30 despite resistance from sectors expected to lose some of the tariff protections they have historically enjoyed.

The measures, to be announced in the Budget 2026-27, will include reductions in additional customs duties (ACD), regulatory duties (RD) and customs duties (CD) across thousands of tariff lines.

Under the plan, ACD will be reduced on 3,149 tariff lines. The remaining 2 per cent ACD will be abolished on 518 tariff lines falling under the 15pc customs duty slab, while duties will be cut from 4pc to 2pc on 2,166 tariff lines and from 6pc to 4pc on another 465 tariff lines carrying customs duties above 20pc.

The government has also approved a sharp reduction in regulatory duties, lowering the maximum RD rate to 20pc from the current 50pc on more than 1,948 tariff lines. The longer-term objective under the reform programme is the gradual elimination of regulatory duties on more than 1,900 tariff lines.

Officials said customs duties ranging between 20pc and 50pc will also be reduced on tariff lines currently subject to rates exceeding 20pc, affecting sectors that have traditionally been among the most protected segments of the economy.

The automobile industry is expected to see some of the most significant changes. Customs duty on imported vehicles will be reduced from 100pc to 50pc, while regulatory duty will decline from 50pc to 20pc in FY2026-27. As a result, the combined import duty burden on vehicles will fall to 70pc from the existing 150pc.

Officials said industries including automobiles, iron and steel, textiles, chemicals and plastics currently enjoy effective tariff protection ranging from 100pc to 150pc. Under the reform framework, those protection levels are expected to decline to between 50pc and 70pc.

The tariff rationalisation programme was launched in the current fiscal year under a five-year roadmap extending to 2029-30. During the first phase, the government provided an estimated Rs200bn to Rs250bn in relief by reducing additional customs duties and lowering the maximum regulatory duty rate from 90pc to 50pc.

As part of those measures, the government eliminated the 2pc ACD on 4,383 tariff lines, reduced it from 4pc to 2pc on 518 tariff lines, from 6pc to 4pc on 2,166 lines and from 7pc to 6pc on 468 tariff lines.

Officials said the prime minister had instructed the relevant ministry to proceed with the reforms despite pressure from cabinet members and parliamentarians linked to sectors likely to be affected by lower tariff protection.

The reform plan also envisages a gradual simplification of Pakistan's tariff structure. By the end of the implementation period, customs duty slabs will be streamlined into four rates of 0pc, 5pc, 10pc and 15pc.

Meanwhile, pharmaceutical products and medical instruments will be exempted from customs duties in the upcoming budget. The government will also further reduce the scope of concessions available under the Fifth Schedule of Customs by shifting a large number of products to the First Schedule.

The simple average tariff rate is projected to decline to 13pc in FY2026-27, following a reduction to 15.65pc from 20.2pc during the first phase of reforms. Official projections show the average tariff falling further to 11.5pc in FY2027-28, 10.25pc in FY2028-29 and 9.7pc by FY2029-30.

The government estimates the reforms will help generate an additional $5 billion in exports over the five-year period by lowering production costs and improving Pakistan's competitiveness in international markets.