New tariff policy seen as disaster for manufacturers in Pakistan

ISLAMABAD: The government’s new national tariff policy has put domestic industry in serious trouble, with many stakeholders warning that the move could be disastrous for local manufacturing.

This concern emerged during a consultative meeting between representatives of local industry and the Ministry of Industries and Production (MoI&P), following a letter issued by the Engineering Development Board (EDB) on May 17, 2025. A copy of the letter is available with Business Recorder.

In the letter, the EDB informed industry stakeholders of a significant shift in the country’s tariff policy under the National Tariff Policy 2025–30. The letter, widely circulated among stakeholders including the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), all provincial chambers, industrial associations, exporters, and manufacturing groups, was aimed at alerting the sector about the far-reaching implications of the new policy.

National Tariff Policy: govt approves phased elimination of import duties

According to the letter, the government intends to substantially reduce import duties as part of an export-led growth strategy, with implementation to begin in the federal budget for 2025–26 and continue over five years.

The policy formulated under the direct instructions of the Prime Minister includes: (i) elimination of Additional Customs Duty (ACD) over four years starting FY2025–26; (ii) phasing out of Regulatory Duty (RD) over five years; (iii) gradual elimination of the Fifth Schedule of the Customs Act, which covers imports of capital goods and raw materials; (iv) restructuring of the customs tariff into four slabs: zero percent, five percent, 10 percent, and 15 percent; and (v) capping of maximum customs duty at 15 percent. Currently, there are five duty slabs: zero percent, three percent, 11 percent, 16 percent, and 20 percent.

The three percent slab will be removed, shifting those tariff lines to either zero percent or five percent. The 11 percent slab will be lowered to 10 percent, and the 16 percent slab to 15 percent, while the 20 percent slab will be gradually eliminated.

A follow-up meeting held on May 19, 2025, was attended by a large number of stakeholders via Zoom—so many, in fact, that some were unable to join due to platform limitations. Participants across sectors voiced strong opposition to the proposals.

FPCCI representatives stated that they had already submitted comprehensive budget proposals after an extensive consultative process with members. Auto vendors and OEMs noted that the EDB had been consulting them for the past six months as part of the budget-making process.

Industry representatives expressed shock that such a drastic policy shift was being introduced at a late stage in the budget cycle—particularly after consensus had already been achieved with the IMF, and a future tariff roadmap was near finalization by the Tariff Policy Board in coordination with the Ministry of Commerce and the Ministry of Industries and Production.

“Stakeholders expressed deep concern, warning that this move could spell disaster for the domestic industry,” said one participant. “With finished goods facing only a 15 percent maximum tariff, what incentive is left to produce locally? This policy risks are turning Pakistan into a mere trading hub.”

Interestingly, the EDB did not explicitly endorse the proposed policy during the meeting. In response to stakeholders’ objections, the CEO of EDB repeatedly stated, “Please send your comments, observations, and suggestions in writing—we will take them up at the relevant forum.”

Insiders believe there is a significant divergence of views within the government on tariff reform, and that these disagreements are now playing out in public forums.

Copyright Business Recorder, 2025