If you're a skeptic tempted to file the National Tariff Policy under “never gonna happen,” you’re in sober company. The policy aims to gradually eliminate regulatory and additional customs duties—tools the government has long wielded not just to shield domestic industries from perceived harm, but to prop up its own revenues. These so-called “temporary” interventions have lingered for decades in Pakistan, far outliving their stated shelf life.
A predictable, transparent import regime, rid of the distortions introduced through special regulatory orders or budget day surprises is good. For business and for foreign investment, even if domestic firms aren’t quite ready. Still, a tariff liberalization policy on its own is neither sufficient nor particularly smart policymaking. Let’s be clear: tariff liberalization without complementary fiscal and industrial policy reforms will be dead on arrival.
Take automotive assemblers. They benefit from import protection in two major ways. First, they’re shielded by exorbitant duties and taxes on completely built unit (CBU) imports, effectively up to 200 percent for luxury vehicles. This bundles in a couple of taxes including a customs duty (50%–100%), sales tax (17%), advance tax (5%, double for non-filers), federal excise duty (1%), and regulatory duties (15%–90%). Second, there’s a ban on used car imports, except through the gift scheme, where duties are fixed by engine capacity ($4,800 to $27,940).
Used vehicles also attract regulatory duties, but only for engines above 1300cc, despite the fact that 70 percent of used car imports have smaller engines. Yes, these barriers are hefty—specially keeping a consumer in mind—but not unprecedented globally.
India, for example, also enforces stringent import restrictions. But the results are starkly different. The country has seen a surge in investments that has led to increased domestic productionfueled by deep localization. Contrast that with Pakistan, where “localization” often amounts to importing raw or intermediary goods, adding minimal value, and labeling the product localized.
While Pakistan’s policy links duty rates to localization levels, 30 percent for localized parts, 40 percent for non-localized, the sensitivity of car prices to dollar fluctuations tells a different story: localization is superficial at best. The problem is lazy policymaking. Any real industrial growth demands a policy that incentivizes downstream and core industries that invests and builds upon the needs of the domestic producers.
Volumes in Pakistan’s auto industry are stagnant, sensitive to macroeconomic shocks that shrink consumer incomes. Car buyers are forced to pay outrageous prices for stripped-down models that are becoming increasingly unsafe, lightweight, and expensive.
Assemblers argue, fairly, that they are overtaxed. Indus Motors paid an effective tax rate of 38% in FY23 and FY24. Honda paid 45%, including super tax. Suzuki was operating in the red even before delisting from the PSX. But they are not the victims here.
Assemblers often blame high taxes for steep car prices, but they’ve long benefited from protectionist policies while offering substandard vehicles. Consumers turn to used imports not just for affordability, but for better safety, comfort, fuel efficiency, features, and durability.
Domestic pricing is opaque: duties on localized and non-localized parts, plus sales tax and FED, are baked into the ex-factory price. Buyers then pay registration, token tax, and advance tax—higher for non-filers—pushing the on-road price 15–30% above the ex-factory rate, depending on engine size and tax filing status. Yet quality is not there.
The fact is, Pakistan’s tariff policy is not designed for investment or export growth. Historically, it has been used an instrument for two goals: revenue collection (FBR) and dollar conservation (SBP). The new policy will never see the light of the day, not for its lack of ambition but itslack of viability.
If this were truly about industrial development, the policy would look radically different. Given our limited institutional capacity, we must prioritize what’s feasible over what’s ideal.
First, abolish the gift scheme. It’s an open secret that thousands of car dealers abuse the scheme to commercially import and sell used vehicles.
Either there’s a ban on used cars, or there isn’t. We can’t continue to operate in limbo where the government tries to placate assemblers with import restrictions while Customs rakes in revenues from the same imports.Once the scheme is abolished, this then becomes a question of policy, not legality.
And then, let’s wonder aloud why assemblers are so threatened by 3-year-old used cars and what that says about their competitiveness.
Second, follow the numbers. In the past decade, customs duties have contributed around 15 percent of Pakistan’s total tax revenues. In FY23, petroleum products accounted for over 30 percent of that; automotives added about 9 percent; steel, around 7 percent. Any reduction in duties will immediately dent revenues, and if lowered significantly, will unleash a wave of imports that could blow up the current account.
The cycle is predictable, painful, and entirely avoidable. Economists can estimate the import surge from duty cuts and other underlying factors.This is necessary to avoid the misuse of import liberalization because a policy that collapses within a year of launch due to macroeconomic issues—something that Pakistan is not too unfamiliar with—is not worth the investment.
Third, tariff liberalization won’t drive global competitiveness or boost exports. With a strong and enthusiastic buy-in of FBR and SBP, a smart strategy woulda) incentivize domestic production down the value chain by rationalizing income tax rates and scrapping super taxes. The current duty incentive structure in automobiles for instance, hasfailed to spur localizationespecially since the list of localized parts hasn’t been updated in years.
The incentive structure hasto be a lot more meaningful and transparent b) work it out with provinces on dual sales tax regimes c) open imports gradually to ensure healthy competition without crushing local assemblersd) leave exchange rate alone and d)eliminate leakages and tax exemptions.
In customs alone, Rs540 billion were lost to duty exemptions, 14 percent of the Rs3.8 trillion in total tax giveaways. That’s equal to 54 percent of FBR’s total collections in FY24, basicallyrendering much of the revenue collectionexercise redundant.
Copyright Business Recorder, 2025