In a strategic economic move, Pakistan and the International Monetary Fund (IMF) have agreed to reduce the country’s weighted average tariffs to 6% over the next five years. This significant cut—almost halving the current 10.6% tariff rate—aims to boost trade, enhance market competitiveness, and facilitate foreign investment by making Pakistan’s tariff structure the lowest in South Asia.
Impact on the Auto Sector
One of the most immediate and tangible effects of this tariff reduction will be on Pakistan’s automobile industry. With the implementation of these reforms, local car prices are expected to decrease as import duties and related costs decline. The tariff reduction process will begin in July 2025, gradually bringing down import costs and promoting a more competitive auto market.
Policy Framework for Tariff Reduction
The tariff cuts will be executed under two major policy frameworks:
- National Tariff Policy – Aimed at reducing tariffs to 7.4% by 2030 for most sectors, except automobiles.
- Auto Industry Development and Export Policy (AIDEP) – A targeted initiative to further reduce tariffs in the automobile sector, ensuring that duties on car imports are significantly minimized.
While the original IMF proposal recommended lowering the weighted average tariff to 5%, the federal government negotiated a slightly higher threshold of 6%. The new tariff policy is expected to be approved by the federal cabinet before the end of June and fully implemented in the 2025-26 budget.
Key Structural Changes
The broader tariff reform plan includes several pivotal measures:
- Abolition of Additional Customs Duties – All additional customs duties (ACDs) will be completely eliminated, easing the burden on importers.
- 80% Reduction in Regulatory Duties – Regulatory duties (RDs) on various goods will be significantly slashed, making imported products more affordable.
- Withdrawal of Concessions Under the Fifth Schedule – Some existing duty exemptions under the Customs Act will be phased out to streamline the tax structure.
- Removal of 7% Additional Customs Duty on Specific Goods – Effective from July 2025, reducing overall import costs.
- Elimination of 2% Duty on Zero-Tariff Slab – Further facilitating duty-free imports of essential goods.
Automobile Sector Tariff Reforms
By 2030, all additional and regulatory duties on vehicle imports will be eliminated, and the maximum import tariff will be capped at 20%. The implementation will be staged, with regulatory duties on vehicles set to decrease by 55-90% in the first year, followed by incremental reductions in subsequent years. Additionally, a new 6% customs duty slab will be introduced, while existing duty slabs will be gradually reduced.
Economic Implications and Future Outlook
The reduction in tariffs is expected to encourage trade liberalization, attract foreign investment, and enhance economic efficiency. With a more competitive auto market and lower costs for imported goods, consumers are likely to benefit from decreased prices and improved product availability. However, local manufacturers may face increased competition from foreign companies, necessitating greater efficiency and innovation in domestic industries.
By implementing these reforms, Pakistan aims to foster a more business-friendly environment, enhance industrial competitiveness, and drive long-term economic growth. The success of these initiatives will largely depend on policy execution and the stability of global commodity markets.
Pakistan’s commitment to lowering tariffs represents a bold step toward economic transformation. As the country moves towards a 6% weighted average tariff, the coming years will be crucial in determining the full impact of these structural adjustments on trade, industry, and consumer markets.
