In a significant policy adjustment, the federal government has partially reversed its earlier decision to slash or eliminate regulatory duties on 285 imported items for the upcoming fiscal year. This rollback aims to protect domestic industries from abrupt exposure to foreign competition, particularly from China, and to avoid potential job losses across key sectors.
The original plan, part of a sweeping tariff rationalisation strategy, sought to reduce protection for local industries by 52% over five years. It proposed reducing duties on around 1,984 tariff lines to boost competitiveness and streamline trade. However, concerns over the potential negative impact on local manufacturing have led the government to revise its approach. Of the 1,984 tariff lines, 285 will now face modified duty structures, with new rates expected to be notified on Monday.
The Tariff Policy Board approved the recalibration on Friday, deciding to retain some duties on finished goods to limit the projected revenue loss from Rs200 billion to Rs174 billion. While the original policy aimed to encourage imports of raw materials and semi-finished goods, it inadvertently also reduced tariffs on finished products already manufactured in Pakistan — a move now deemed risky for the job market.
“This is a timely and necessary correction,” a steering committee member said, warning that the earlier version of the policy had set many local industries on a path toward closure.
Under the revised scheme, the average applied tariff rate will still fall — from 20.2% to 9.7% over five years — but the pace of reduction in the first year has been tempered. For instance, instead of removing the regulatory duty on polyester fiber entirely, it will now carry a 2.5% charge.
Initially, the government had intended to lower the average tariff rate to 15.7% in the first year by bringing down customs duties to 11.2%, additional customs duties to 1.8%, and regulatory duties to 2.7%. These targets have now been softened.
Insiders say the policy rethink was prompted after steering committee members warned Prime Minister Shehbaz Sharif that the anticipated rapid growth in exports might not materialise. Slower export growth, paired with increasing imports, could further strain Pakistan’s already fragile foreign exchange reserves.
The original roadmap, largely based on projections by the World Bank and other foreign consultants, assumed optimistic economic dynamics that some in the government now find unrealistic. Secretary of Commerce informed the National Assembly’s finance committee that the macroeconomic assumptions — including robust export performance — were driven by World Bank models, but may not align with local realities.
As per the revised plan, the number of tariff lines where duties will remain unchanged in the first year has risen from 828 to 970. Furthermore, 142 items are being moved into lower slabs, capped at 20% duty or below.
Earlier plans to reduce regulatory duties by 20% on 602 items have been trimmed to 538 lines, excluding 64 items from immediate relief. Likewise, instead of applying a 50% cut on 551 lines, the updated policy restricts it to 473, with the remaining 78 — primarily finished goods — facing no changes.
Despite the slowdown, the government insists the long-term objective remains unchanged. “The target of reducing average tariffs to 9.7% over five years still stands,” said Rana Ihsaan Afzal, Prime Minister’s Coordinator on Commerce.
The broader tariff roadmap envisions eliminating additional customs duties over four years, phasing out regulatory duties in five, scrapping the 5th Schedule of the Customs Act, and consolidating tariff slabs to a maximum of four, with the highest slab capped at 15%.
However, the World Bank’s forecast — projecting export growth of 10-14% and import growth of only 5-6% — has drawn skepticism from the State Bank of Pakistan and several cabinet members. When questioned by the National Assembly’s finance committee, Finance Minister Muhammad Aurangzeb acknowledged, “These are assumptions — some may work, some may not.”
Nevertheless, the FBR now expects to generate net revenue gains of Rs74 billion next fiscal year from the revised tariff structure — a notable shift from earlier estimates of a Rs500 billion loss based on static calculations.
The steering committee, chaired by Finance Minister Aurangzeb, had earlier advised retaining the original plan, but the latest feedback from stakeholders prompted a more cautious implementation. Instead of completely eliminating duties on certain items in year one, the government will now phase in reductions more gradually — opting for a 50% cut instead.
This policy recalibration reflects the government’s attempt to strike a balance between liberalising trade and safeguarding domestic economic stability.
