Pakistan and the International Monetary Fund (IMF) have reached an agreement to lower the country’s weighted average tariffs to 6 percent over the next five years. This marks a significant reduction, almost cutting the current 10.6 percent rate in half. The main goal of this policy is to make Pakistan’s economy more open to international trade and investment by reducing barriers for foreign businesses. Once fully implemented, Pakistan will have the lowest tariff rates in South Asia, making imported goods more affordable and increasing competition in local markets.
One of the most noticeable effects of this tariff reduction will be in the automobile sector. Lower tariffs will decrease the cost of importing cars and auto parts, which could lead to a drop in car prices. Consumers may benefit from more affordable vehicles, while automakers could gain access to cheaper raw materials. The first phase of this reduction is set to begin in July 2025, with gradual cuts taking place each year until the 6 percent target is met by 2030.
The tariff reduction will be guided by two major policies:
- The National Tariff Policy (NTP) – This policy aims to lower the overall tariff rate to 7.4 percent by 2030.
- The Auto Industry Development and Export Policy (AIDEP) – This will specifically focus on reducing tariffs within the automobile sector, ensuring that imported vehicles and parts become more affordable.
However, outside of the automobile sector, the weighted average tariff will be slightly higher at 7.4 percent instead of the previously proposed 7.1 percent. Despite this minor adjustment, businesses and consumers are still expected to benefit from lower costs on various imported goods.
In addition to reducing tariffs, the government has announced several other key trade policy changes:
- All additional customs duties will be completely removed.
- Regulatory duties will be cut by 80 percent, making imports cheaper.
- Some tax concessions under the Customs Act’s Fifth Schedule will be withdrawn.
Furthermore, a 7 percent additional customs duty on selected goods will be removed, along with a 2 percent duty on items in the zero-tariff category. These changes will take effect in July this year, providing immediate relief to importers and businesses.
The IMF originally proposed reducing tariffs to 5 percent, but the Pakistani government negotiated a slightly higher rate of 6 percent. The new tariff policy is expected to be approved by the federal cabinet before the end of June, with full implementation in the 2025-26 budget.
For the automobile sector, the government has committed to removing all additional customs and regulatory duties by 2030. The highest tariff rate for any imported product in this sector will be capped at 20 percent. Regulatory duties on vehicles will see an immediate reduction of 55-90 percent in the first year, with further cuts planned in the following years.
To simplify the tariff structure, a new 6 percent customs duty slab will be introduced. Additionally, duties across different tax slabs will be gradually lowered over the next few years, making imports more cost-effective and boosting trade activity.
This comprehensive tariff reform is expected to make Pakistan a more competitive and business-friendly country, attract foreign investment, and provide financial relief to consumers. However, local industries may face increased competition from international businesses, which could challenge domestic manufacturers to improve efficiency and product quality.
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