ISLAMABAD: The federal government has approved a partial reversal of its earlier plan to eliminate or reduce regulatory duties on 285 imported products in the next fiscal year, after concerns were raised about the potential negative impact on local industries.
The decision follows input from stakeholders and members of a steering committee overseeing the new tariff policy.
The Tariff Policy Board on Friday approved a revised rationalisation plan for regulatory duties on finished goods. A summary has been circulated for cabinet approval, and the Federal Board of Revenue is expected to issue a statutory regulatory order on Monday to implement the new duty rates.
Under the original plan, regulatory duties on approximately 1,984 tariff lines were to be reduced or abolished to cut protection for local industries by 52% over five years. Of these, 285 lines will now be adjusted further.
The rollback reduces the projected revenue loss from Rs200 billion to Rs174 billion.
Sources said the government decided to slow down the implementation of the first-year reduction after committee members informed Prime Minister Shehbaz Sharif that projected export growth may not materialize as expected, potentially weakening Pakistan’s foreign exchange reserves. The World Bank’s macroeconomic projections had forecast export growth of 10–14% and import growth of 5–6%, but these figures were questioned by the State Bank of Pakistan and cabinet members.
The revised plan maintains the overall goal of reducing the average applied tariff rate from 20.2% to 9.7% over five years. However, the pace of reduction in the first year has been moderated.
For example, instead of fully removing the regulatory duty on polyester fiber, the product will now carry a 2.5% duty.
The plan still aims to phase out additional customs duties over four years, regulatory duties over five years, and the 5th Schedule of the customs law in the same period. It will also reduce the number of tariff slabs to four, with a maximum rate of 15%.
Initially, the government had planned to cut average tariffs to 15.7% in the first year, with customs duties at 11.2%, additional duties at 1.8%, and regulatory duties at 2.7%. That plan also included a 20% reduction in regulatory duties on 602 items, but the new version limits the 20% cut to 538 tariff lines, excluding 64 items from this round.
In addition, the plan had proposed a 50% reduction in duties on 551 tariff lines. That number has now been lowered to 473, with the remaining 78 lines—mostly related to finished goods—seeing no change.
The number of tariff lines where duties will remain unchanged in the first year has increased from 828 to 970. In total, 142 tariff lines are being shifted to slabs currently charged at 20% or less.
According to government officials, the changes were made after concerns were raised that local industries were being exposed to competition, particularly from China, without enough protection. While the aim remains to reduce unnecessary protection, the government has acknowledged the need to protect jobs and production capacity.
The policy revision follows criticism of the original tariff rationalisation plan prepared by foreign and local consultants. The commerce secretary told the National Assembly Standing Committee on Finance that the export and import projections were based on models developed by the World Bank, which did not fully account for local conditions.
Prime Minister Shehbaz Sharif formed a steering committee, led by Finance Minister Muhammad Aurangzeb, to manage the policy’s implementation. After reviewing the feedback, the government decided to revise the timeline and scale of duty reductions in the first year.
Rana Ihsaan Afzal, the Prime Minister’s Coordinator on Commerce, confirmed that while the overall target remains, the adjustment in the pace is intended to avoid immediate harm to domestic industries.
During the National Assembly committee meeting, Finance Minister Aurangzeb said the assumptions in the World Bank model may or may not work as expected. Committee members were informed that, under static conditions, the plan could have resulted in a revenue loss of Rs500 billion.
However, with expected revenue growth of 7–9%, the revised plan is now estimated to yield a net gain of Rs74 billion for the FBR in the next fiscal year.
