Islamabad:
The government has accepted the International Monetary Fund (IMF )’s greatest demand to completely open its economy for foreign competition by cutting the effective average import tariff by one -third to only 7.1% over five years, especially to open the very limited car sector.
Minerals and car sectors will be the two key areas of financial liberalization under the IMF umbrella, government sources said. Pakistan’s residual Balochistan province is rich in minerals.
With the fresh understanding reached on Tuesday, Pakistan and the IMF have withdrawn closer to an agreement at staff level, a prerequisite for presenting the country’s case to the Executive Board to approve the more than $ 1 billion loan trades, government sources said.
The negative impact of one third reduction in average tariffs would be RS278 billion in tax revenue, which is expected to be compensated by an increase in economic activity driven by trade liberalization.
The government has agreed to abolish additional duties that completely cut regulatory tasks by 75%and withdraw concessions under the fifth plan of the Customs Act, according to sources.
It has been agreed that the weighted average tariffs used will be reduced from the current 10.6% to only 7.1% over five years that started in July this year, they added. This 33% reduction in duty will completely open the economy of foreign competition.
Pakistan’s agreement with the IMF on trade liberalization comes at a time when the world is closing its borders for foreign companies, especially the United States – the largest shareholder of the IMF.
Pakistan’s companies are not aligned with foreign competition and have grown under the umbrella of customs protection at the expense of consumers. The weighted average tariffs in South Asia are approx. 5.3%, while Asia’s average is 7.5%.
Sources said that understanding will be implemented through a new national customs policy to be rolled out in July this year, and a new automotive development and export policy to be implemented from July 2026.
Pakistan has assured the IMF that it will seek approval of the new customs policy from the federal cabinet by the end of June. The tariff reduction is implemented in the financial year 2025-26 budget to be presented in Parliament in June.
According to understanding, all additional customs are removed over five years, while regulatory tasks will be cut by 75%. This will reduce the weighted average duty from 10.6% to 7.1% of the financial year 2029-30.
Pakistan has also assured the IMF that in the future it will not introduce new regulatory tasks except how significant and a sunset clause will be introduced for their elimination.
According to the plan, additional customs will be incorporated either in the customs or regulatory tasks.
Cars will be cheaper
The largest customs changes will be introduced in the car sector, where the government has committed to end unnecessary protection of the automotive industry in 2030. Pakistan assured the IMF that it will eliminate all additional customs and regulatory tasks and also rationalize customs plates. For the car sector, weighted average tariffs will be brought down to 5.6%, sources said.
Sources said that the IMF tests during the omnipotent 7-14. March reviewed that the IMF was seeking insurance that the customs reduction plan would be implemented over five years and that the government would not derail it after the IMF program ends in 2027.
However, Pakistani authorities claimed that their average tariffs were already lower and that the overall average was higher due to higher tasks on alcoholic beverages and spirits. In the case of cars, however, customs rates were too high, with the highest plate reaching 196% of the vehicle’s price.
The IMF was told last week that the government would include targets for export -led growth, green initiatives and support for technology -intensive goods with high value of the new customs policy.
As a principle, customs will not be used as a tool to raise revenue and once reduced, they will remain unchanged for three years.
Apart from the autospector, trade restrictions, including any non-customs barriers, will also be removed for the mineral sector, sources said.
Pakistani authorities believe that free trade agreements are an important reason for high regulatory tasks as the government uses these tasks to limit the influx of imported goods from China.
Sources said that the estimated revenue consequences of customs rationalization – including customs duties, additional customs and regulatory tasks – over five years are RS278 billion. Any reduction in the customs collection will be more than compensated through increased tax collection at both import and domestic levels, they added.
The boost in overall economic activity will lead to a net increase in all other domestic taxes, with cumulative tax collections expected to increase with RS1.4 trillion, according to the Ministry of Commerce’s projections.
Authorities believe that trade liberalization could push exports to $ 47 billion by 2030 and that the economy could grow by 4.6%.
The IMF asked about the process of introducing duties and was told that the Customs Policy Board is often circumvented by the Federal Board of Revenue (FBR), sources said.
The principle of reducing customs rates will be based on the import share of the product, its contribution to the overall manufacture, competition level and its influence on downstream industries.
