ISLAMABAD: As part of a broader tariff rationalisation strategy aimed at lowering input costs, improving competitiveness, and supporting industrial expansion, the government has decided to slash the additional customs duty (ACD) on 3,149 tariff lines and reduce regulatory duties (RD) to 20 per cent on more than 1,900 tariff lines in the upcoming budget. Officials privy to the budget preparations told Dawn that Prime Minister Shehbaz Sharif has approved the second phase of the five-year Tariff Reform Plan (2025-2030), which is expected to provide approximately Rs200 billion in import-duty relief to the industrial sector.
Major reductions in both customs and regulatory duties are expected in a few sectors, including automobiles and batteries, which currently enjoy high levels of protection at the expense of consumers, officials said, adding that efforts are underway to retain some level of protection for these industries. Under the plan, industries such as the automobile, iron and steel, textiles, chemicals, and plastics currently shielded by effective tariff rates ranging from 100pc to 150pc will see those rates reduced to around 50pc to 70pc. Officials said the prime minister has assured that the reform agenda will proceed despite pressure from cabinet members and parliamentarians associated with the sectors likely to be affected by the tariff rationalisation measures.
In the first phase, the government had already provided a relief of Rs200bn to Rs250bn by eliminating ACDs, reducing their rates and lowering the maximum RD to 50pc. However, a few sectors, particularly automobiles, had opposed the tariff liberalisation plan. The premier has directed the relevant ministry to proceed with the reforms, which will be announced in the Budget 2026-27.
The first phase of the tariff reforms was implemented in the ongoing fiscal year. In the upcoming budget, the government will eliminate the remaining 2pc ACD on 518 tariff lines under the 15pc tariff slab, reduce it from 4pc to 2pc on 2,166 lines under the 20pc slab, and from 6pc to 4pc on 465 tariff lines currently subject to customs duty above 20pc. In the first phase, the government had eliminated 2pc ACD on 4,383 tariff lines, while reducing the duty from 4pc to 2pc on 518 tariff lines, from 6pc to 4pc on 2,166 tariff lines, and from 7pc to 6pc on 468 tariff lines. The government has also approved a plan to cut RD to a maximum of 20pc on over 1,948 tariff lines in the upcoming budget, down from 50pc.
An average 20pc reduction in RD will apply across all products in the second phase, with the upper limit fixed at 20pc. In the FY26 budget, the RD was reduced to a maximum of 50pc, down from as high as 90pc. However, the RD was fully withdrawn on a limited number of items. The five-year plan envisages the gradual elimination of RD on over 1,900 tariff lines. It has also been decided to reduce customs duty (CD) between 20 and 50pc on all tariff lines currently above 20pc in the upcoming budget, including sectors such as automobiles and alcoholic beverages, which earlier faced rates as high as 100pc. For instance, customs duty of 100pc and RD 50pc on vehicles will be reduced to 50pc and 20pc, respectively in 2026-27. This will bring down the total import duty to 70pc from the existing 150pc, a change expected to lower vehicle prices in the market.
The simple average tariff target for 2026-27 has been set at 13pc under the second phase of the plan, following a reduction in the first phase from 20.2pc to 15.65pc. The projection for the remaining years indicated a further decline to 11.5pc in 2027-28, 10.25pc in 2028-29, and 9.7pc in 2029-30, the final year of the implementation framework.
The 5th Schedule of Customs, which provides industry-specific tariff concessions, will also be further reduced, with most products currently covered under it transitioning to the First Schedule in the second phase. This means the government will withdraw exemptions on specific products in the upcoming budget. Meanwhile, the government will exempt duty on pharmaceutical products and instruments in the upcoming budget.
A key adjustment is restructuring customs duty slabs into a streamlined system of 0pc, 5pc, 10pc, and 15pc by the end of the five-year plan. The government expects tariff rationalisation to increase exports by around $5bn by the end of the five-year period, thereby reinforcing Pakistan’s efforts to enhance competitiveness in global markets.
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