• Exports expected to rise by $5bn by the end of five-year reform period
• Super tax rate cut by 50bps for income slabs between Rs200m and Rs500m

ISLAMABAD: The government has unveiled a comprehensive five-year tariff reform plan aimed at fostering export-led growth and revitalising industrial development through a series of tariff rationalisation measures. The plan includes the gradual elimination of additional customs duties (ACD) and regulatory duties (RD) on over 7,000 tariff lines.

In its first year, the government provided relief worth Rs200 billion in import duties by lowering tax rates and fully eliminating ACD on raw materials. However, estimates from the Federal Board of Revenue (FBR) indicate that increased imports may raise collections from sales tax and withholding tax, partially offsetting the revenue loss from lower import duties.

A key fiscal measure includes a 0.5 percentage point reduction in the super tax rate for income slabs between Rs200 million and Rs500 million — an important bracket for the corporate sector under the income tax regime.

The government expects the tariff rationalisation to increase exports by around $5bn by the end of the five-year period, reinforcing Pakistan’s drive towards a more competitive global trade position.

The first phase of the reform introduced a simplified customs duty structure with slabs of 0, 5, 10, 15, and 20 per cent. The existing 16pc slab was reduced to 15pc, while the 11pc rate was dropped to 10pc. The 3pc slab was abolished, with products either moved to a zero-duty category or the new 5pc slab.

The government has set a target to slash the simple average tariff from the current 19pc to 9.5pc within five years. A key adjustment in the plan includes restructuring duty slabs with a streamlined system of 0pc, 5pc, 10pc and 15pc at the end of the five-year plan.

By the end of the implementation period, the tariff overhaul will establish a uniform maximum duty slab of 15pc, eliminating sector-specific peaks that previously exceeded 20pc.

The government announced the elimination of the additional customs duty of 2pc on 4,383 tariff lines, retaining it only on 95 lines.

The plan also includes a reduction of ACD from 4pc to 2pc on 518 tariff lines under the tariff slab of 15pc, from 6pc to 4pc on 2,166 lines under the 20pc slab, and from 7pc to 6pc on 468 lines currently subject to a customs duty above 20pc.

The government has slashed regulatory duties, which currently reach as high as 90pc on various products, bringing them down to a maximum of 50pc in the budget. The regulatory duty was removed on synthetic staple fibre goods falling under the 554 Pakistan Customs Tariff (PCT) code. Similarly, the regulatory rates were reduced on all those items falling under the 595 PCT code.

The ACD currently set at 2pc, 4pc, 6pc and 7pc across various slabs will be gradually phased out to zero within the next three to four years. Regulatory duties, which presently range from 5pc to 90pc on various products, will also be fully eliminated over five years, easing import costs and improving market accessibility.

Moreover, the 5th Schedule of Customs, which provides industry-specific tariff concessions, will be dissolved, with all products covered under it transitioning to the First Schedule in a phased manner. In the first phase, the government has withdrawn exemptions on 479 entries in Part I, Part III and Part VII of the Fifth Schedule.

According to the plan, industries such as auto, iron and steel, textiles, chemicals and plastics — currently shielded by effective tariff rates ranging between 100pc and 150pc — will see those rates reduced to around 50pc to 60pc. Prime Minister Shehbaz Sharif has already constituted a steering committee to engage with all these sectors after the budget for a gradual reduction in the tariff protection.

According to the tariff reform plan, these concessions will either be discontinued or extended universally, ensuring a more equitable trade policy across industries.

The government has decided to embark on an outward-looking, export-led growth tariff policy. This major shift in the trade and tariff policy is based on thorough research, evidence from successful economies and Pakistan’s own experience.

The drastic cuts in duties will provide full support to the vulnerable sectors and industries. The cascading principle will be maintained and industries will still enjoy substantially high effective rates of protection.

The current high, complex, and discriminatory tariff structure has favoured only a few big businesses, which over time have become less efficient and unproductive.

Published in Dawn, June 11th, 2025