National Tariff Policy 2025-2030: Pictorial presentation of the import tariff cutting exercise

The tariff policy proposed in the National Tariff Policy 2025-2030 by the Ministry of Commerce promises an overhaul of the current import tariff structure in the next five years. It reduces the customs duties slabs to 4 from 5, reduces customs duties to a maximum of 15%, eliminates regulatory duties in the next 5 years, eliminates additional customs duties in the next 4 years and phases out the 5^th schedule in the next 5 years[1]. If the government is successful in implementing this policy, it will eliminate the web of complex and convoluted regulatory duties and additional customs duties. This should support a more efficient international trading environment in Pakistan that is better connected into global and regional value chains.  The recent set of data stories published by EAG recently highlights the needed for such tariff reforms. The following pictorial presentation sets out the plan to reduce customs duties as outlined in the policy.

[1] Ali Salman details the proposed import tariff cuts in his article, “New tariff policy – have we liberalised enough?”

The tariff rationalization exercise proposes the elimination of regulatory duties and additional customs duties in the next five years. The simple average customs duties are likely to decrease by 2.23 percentage points in the next five years[1]. It is proposed by EAG that these should be further reduced through bilateral and multilateral negotiations of FTAs that offer lower custom duties on imports into Pakistan to its trading partners.

[1] Higher customs duties may provide certain policy space to policymakers negotiating regional trade agreements. However, unilateral reduction in import duties should be preferred if such negotiations are unlikely.

The 1^st slab represents zero customs duties. The second slab represents tariffs between 0 and 3 percent in the current year, which will interestingly be adjusted to a higher 5 percent in the first year and then reduce to 0 in 2027. This could be due to the standardizing of the tariff slabs in terms of 5s and 10s rather than the convoluting allocation involving 3, 11 and 16. Overall, there is a gradual reduction to zero in the first three slabs, while the fourth slab sees a reduction to 5%, the fifth slab sees a reduction to 10 percent and the last slab sees a reduction to 15%. In five years, there will be 4 custom duty slabs ranging from 0% to 15%. The maximum customs duties are expected to decrease from the current highs of 90% to 15%[1].   

The focus of the new tariff policy is the elimination of regulatory duties and additional customs duties.

[1] The slashing of tariff rates in the top slab may not reduce the overall average of the custom duty as the number of products in the top slab are likely to be fewer.

The additional customs duties imposed on the corresponding slabs are expected to decline to zero in the next four years. The additional custom duties are imposed based on the level of the import tariffs in each slab, with the highest at 6%. However, some products face additional customs duties of 35% as subject to the Auto Policy (2021-26).

The regulatory duties are planned to be phased out in the next five years as well. The products reporting regulatory duties of 5% and 10% will be phased out by 2028, while the products with regulatory duties of 15% and more will be phased out by 2030. EAG believes that the phasing out the regulatory duties will be a more complex process, particularly as import-competing industries find increasing import competition in the market.  

The new tariff policy is a step in the right direction as it plans to remove trade-related distortions in the economy by eliminating the web of complex import duties. However, EAG believes that the high customs duties must also be slashed, particularly by aggressively pursuing regional trade agreements. Deeper agreements with trading partners will not only reduce overall customs duties but will also help Pakistan build its technical capabilities, industrial competitiveness and increase overall productivity. Improving the trading environment in Pakistan requires a holistic approach on trade policy. EAG believes that it is important to ensure that complementary reforms that facilitate and increase trade are continuously implemented.