In a major shift aimed at liberalising trade and attracting foreign competition, the government has approved a plan to reduce import taxes by Rs120 billion in the upcoming federal budget. Despite concerns raised by the ministries of Commerce and Industries, Prime Minister Shehbaz Sharif has greenlit a sweeping reform of the tariff structure, aiming to phase it in over five years.
Under the new plan, customs duty slabs will be reduced from five to four—0%, 5%, 10%, and 15%—down from the current top rate of 20%. The 3% duty slab will be abolished, and most items under it will likely shift to the 5% bracket. The 11% slab will be lowered to 10%, while the 16% and 20% slabs will also see reductions over time.
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While the Commerce Ministry proposed expanding the number of slabs to six, the Prime Minister rejected this in favor of a leaner, more aggressive model. The plan, steeper than even what was agreed with the IMF, aims to stimulate exports by making capital goods and raw materials cheaper for local manufacturers.
Despite the promise of long-term economic benefits, some officials remain cautious. The Ministry of Commerce warned that such rapid liberalisation could stress the balance of payments and hurt domestic manufacturers facing rising input costs. Yet, the government believes increased productivity and tax collection from domestic activity will help offset revenue losses.
