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Tariffs

Pakistan's New Tariff Policy: A High-Risk Bid for Economic Growth

Strategic Insights

— 2 min read

Pakistan's National Assembly Standing Committee on Finance has been briefed on the new National Tariff Policy, which aims to increase exports and reduce the trade deficit by drastically cutting import duties. The policy, touted as "Pakistan's East Asia moment," relies heavily on the World Bank's Global Trade Analysis Project (GTAP) model, which predicts a 52% drop in average applied tariff rates from 20.2% to 9.7% over five years.

The new policy is designed to promote export-led growth through level playing fields, support green initiatives, and encourage the adoption of advanced technologies. However, concerns have been raised about the implications of reduced tariffs on reserves, inflation, exports, and imports. The government claims that exports will rise at twice the pace of imports, leading to a reduction in the trade deficit. However, Finance Minister Muhammad Aurangzeb admitted that these projections are "assumptions" and may not work as expected.

Key Takeaways:

  • The new National Tariff Policy aims to cut average applied tariff rates from 20.2% to 9.7% over five years, resulting in a 52% drop.
  • The policy is based on the Global Trade Analysis Project (GTAP) model, which predicts a 10-14% growth in exports and a 5-6% growth in imports.
  • The government claims that exports will rise at twice the pace of imports, leading to a reduction in the trade deficit.
  • The policy aims to promote export-led growth through level playing fields, support green initiatives, and encourage the adoption of advanced technologies.
  • The reduction in tariffs will lead to a 7-9% revenue gain, with a projected net revenue gain of Rs47 billion in FY25.
  • Additional customs duties will be phased out in four years, regulatory duties in five years, and exemptions within five years.
  • The number of slabs will shrink to four, with a top rate of 15% within five years.
  • The auto sector will be affected, with 35% custom duty reduced to 0% by July 1, 2026, under the new Auto Policy.
  • Quantitative import restrictions on old and used vehicles, subject to quality and environmental standards, will be eliminated.

Statistics:

  • Average applied tariff rates will fall from 20.2% to 9.7% over five years, representing a 52% drop.
  • Exports are expected to grow 10-14%, while imports are expected to rise only 5-6%.
  • The reduction in tariffs is projected to lead to a 7-9% revenue gain, with a projected net revenue gain of Rs47 billion in FY25.
  • The number of slabs will shrink to four, with a top rate of 15% within five years.
  • Additional customs duties will be phased out in four years, regulatory duties in five years, and exemptions within five years.

Sources:

  • Proceedings of the National Assembly Standing Committee on Finance
  • Ministry of Commerce
  • World Bank
  • Global Trade Analysis Project (GTAP) model
  • Pakistan's National Tariff Policy
  • PTI Mubeen Arif Jutt
  • Finance Minister Muhammad Aurangzeb
  • Commerce Secretary Jawad Paul
  • FBR Chairman Rashid Langrial
  • PP MNA Nafisa Shah
  • Leader of the Opposition Omar Ayub Khan

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