Study reveals complex tariff structure costs economy billions

ISLAMABAD: Pakistan’s protectionist and overly complex tariff system is costing the economy billions annually, suffocating industrial competitiveness and trapping the country in a cycle of inefficiency.

This was stated in a new study “Rationalising Pakistan’s tariff regime for export-led growth” by Pakistan Institute of Development Economics (PIDE). Authored by Dr Uzma Zia, it presents a compelling case for urgent, growth-oriented reform of Pakistan’s trade and industrial policy framework.

According to the study, Pakistan’s tariff regime dominated by Regulatory Duties (RDs), Additional Customs Duties (ACDs) and 5th Schedule exemptions long protected inefficiency, distorted price signals and raised production costs. As a result, both manufacturers and consumers faced inflated costs while export-oriented industries are handicapped by an anti-export bias. Every additional year under the current tariff system slows export growth, raises production costs and deepens the trade deficit. Pakistan can no longer afford this inefficiency, warned Dr Uzma.

The upcoming National Tariff Policy (NTP) 2025-30 provides a clear roadmap for reform, aiming to eliminate ACDs within four years and RDs within five, while transitioning products from the 5th Schedule to the 1st Schedule.

If implemented effectively, PIDE projects that the new policy could increase exports by 10-14%, strengthen industrial competitiveness and reduce the trade deficit -- while lowering inflation through reduced input costs.

To achieve these outcomes, the study recommends a comprehensive rationalisation of the customs duty structure from five slabs to four (0, 5, 10, and 15 percent) within five years, alongside a complete phase-out of tariff peaks exceeding 20 percent.

Duties should be harmonised by product category -- lowest on raw materials, moderate on intermediates and highest on consumer goods -- to promote industrial upgrading and attract investment in high-value sectors.

In addition, it proposes aligning auto-sector tariffs with competitiveness and consumer choice under the Automotive Industry Development and Export Plan (AIDEP 2021-26), including duty reductions, removal of ACDs and RDs and allowing controlled import of used vehicles under strict quality and environmental standards.

The author cautions that resistance from protectionist industries and external shocks such as commodity price volatility and exchange rate shifts may slow progress. However, it emphasises that the cost of inaction is far higher in lost investment opportunities, stagnant exports and persistent consumer hardship.

It concludes that Pakistan now stands at a pivotal moment by embracing tariff rationalisation and aligning trade policy with competitiveness and global integration, the country can transition from revenue-driven protectionism to export-led, sustainable growth.