• Customs, regulatory duties to be reduced significantly
• Reforms projected to add $5 billion to exports
• Average tariff rate to drop from 19% to 9.5%
ISLAMABAD:
In a major policy initiative, Prime Minister Shehbaz Sharif has greenlit a five-year tariff reform strategy aimed at making Pakistan’s trade policies more export-oriented. The reform package, set to be unveiled in the 2025-26 federal budget, focuses on significantly reducing customs and regulatory duties on raw materials and semi-finished goods, while phasing out tariff protections for selected industries.
As part of the plan, a simplified customs duty structure featuring slabs of 0%, 5%, 10%, 15%, and 20% will be introduced. Notable changes include reducing the 16% slab to 15%, lowering the 11% rate to 10%, and abolishing the 3% slab altogether—products under the 3% rate will be reclassified under the 0% or 5% categories.
A draft of the plan, obtained by PakCorrespondent, reveals that additional customs duties (ACD) of 2% will be removed from 4,294 tariff lines. ACDs on 545 items will drop from 4% to 2%, 2,227 items will see a reduction from 6% to 4%, and a 1% cut (from 7% to 6%) will be applied to products currently taxed above 20%.
Furthermore, regulatory duties, which in some cases currently reach up to 90%, will be capped at a maximum of 30%, with a roadmap to eliminate them entirely within five years. Finance Minister Muhammad Aurangzeb has endorsed the sweeping reforms as a means to revive industrial productivity.
Export Gains and Industry Impact
The government expects these changes to boost exports by $5 billion over five years. Industries such as automotive, iron and steel, chemicals, plastics, and textiles, which currently enjoy protection with effective tariff rates as high as 150%, will see those rates fall to approximately 50-60%.
Prime Minister Sharif emphasized a strategic pivot from import substitution to an export-led growth model, based on successful international practices and local economic analysis.
The plan also aims to cut the simple average tariff rate from 19% to 9.5% over five years. This will be achieved by replacing the current duty structure (0%, 3%, 11%, 16%, 20%) with a more streamlined and predictable system (0%, 5%, 10%, 15%). The result will be greater transparency, consistency, and ease of compliance for businesses.
Gradual Elimination of Extra Duties
The reform also includes a complete phase-out of additional customs duties — currently set at 2%, 4%, 6%, and 7% — within the next three to four years.
Likewise, regulatory duties ranging from 5% to 90% across various goods will be completely abolished within five years, making imports more affordable and the domestic market more competitive.
In another key measure, the 5th Schedule of Customs, which offers industry-specific tariff concessions, will be phased out. Items covered under this schedule will be merged into the 1st Schedule, with equal treatment across sectors, ensuring a fair and uniform policy.
Shift to Export-Led Growth
The reforms mark a decisive shift towards an outward-facing, export-driven economy, rooted in comprehensive research and successful global models. The plan will maintain the cascading principle of taxation, offering support for vulnerable sectors while gradually removing inefficiencies and overprotection.
Officials argue that the current complex and discriminatory tariff system has long favored a small group of large businesses, leading to inefficiency and stagnation. A senior customs official noted that opposition from vested interests is expected, but described their claims — that reforms will hurt revenue or external balance — as unfounded.
Economic modeling supports the view that while imports may increase marginally, exports are expected to grow at a faster pace, improving the trade balance. Notably, over 45% of imports are inelastic, including food and energy, and past surges in the import bill have largely been due to global price fluctuations, not increased industrial demand.
According to the policy brief, lower tariffs will help reduce anti-export bias, particularly benefiting small businesses in the textile, agriculture, and light engineering sectors by allowing them to participate more effectively in global supply chains.
