ISLAMABAD: The International Monetary Fund (IMF) has said that Pakistan’s trade policies have been highly protectionary, with high average tariffs and a complex tariff structure.
According to the Fund, while headline customs duties (CDs) were reduced slightly over the past decade, this has been more than offset by sharp increases in additional customs duties (ACDs) and regulatory duties (RDs), and these para-tariffs now contribute substantially to the tariff burden.
After accounting for ACDs and RDs, Pakistan’s FY25 tariffs were among the highest in the region, which has contributed to domestic resource misallocation and anemic exports. Tariffs are highest on autos (with peaks at over 150 percent), agriculture, and food. Pakistan’s customs structure is also complex and inefficient, with a system of tariff exemptions which disproportionately benefits a few sectors and large firms.
The National Tariff Policy (NTP) 2025-30 sets out an ambitious path for tariff reform, including large duty reductions and addressing exemptions. The new NTP, approved in July 2026, envisages significant changes to the tariff structure, including: (i) reducing the number of CD slabs from 5 to 4 and cutting rates, with the maximum CD slab to be reduced to 15 percent by FY30;(ii) eliminating all ACDs and RDs over three and five-year periods, respectively; and (iii) phasing out all special duties under the 5th Schedule by FY30. While final tariffs for the auto sector will be determined separately by a new auto sector policy (to be finalized by July 2026), the NTP envisages that those duties will be adjusted based on the same principles and objectives, including substantial CD reductions, elimination of all ACDs and RDs, and reviewing the regime of special customs duties applied to auto sector inputs.
Duty adjustments introduced in the FY26 budget have already reduced trade weighted average tariffs by almost 2 percent, from 10.7 percent to 8.9 percent. Full NTP implementation would reduce trade-weighted tariffs even further, to between 6.7 percent (in a scenario with no further cuts to auto tariffs) and 5.3 percent (if auto tariffs are fully aligned with other sectors) by FY30. The largest potential tariff cuts would apply to the auto sector, while capital goods (excluding transport equipment) would also benefit from particularly large reductions.
The first approach, based on a quantitative trade model provides long-run estimates of the aggregate trade and efficiency impact of the NTP reforms through reallocation of resources across sectors. The second approach, applying a modified version of the DIGNAR model, allows an assessment of the dynamic impacts of the NTP over the short and medium-term, including implications for growth, investment, the real exchange rate and public debt.—MUSHTAQ GHUMMAN
