Tariff rationalisation: Rs500bn revenue loss estimated
Briefing on customs tariff reforms, Ministry of Commerce Secretary Jawad Paul told the National Assembly Standing Committee on Finance, Wednesday, that the estimated revenue impact is Rs500 billion. Various models including macro model, export forecasting model and Global Trade Analysis Project (GTAP) model, import tariff revenue show a loss of about Rs500 billion in static calculations under National Tariff Policy (2025-30).
In the next five years, a positive revenue impact of 7-9 percent has been calculated on revenue considering all factors of customs tariff rationalisation; i.e., increased demand, economic growth, transparency, decrease in under-invoicing, smuggling, compliance cost. The GTAP calculations show that the exports will increase by 10-14 percent, whereas, imports will increase by 5-6 percent.
During the meeting, committee members inquired about rationale behind calculations of increase in exports and imports. Paul responded a separate technical briefing on calculation models/ trade equilibrium models would be arranged for parliamentarians on this issue.
He said that the outcome of the Free Trade Agreements signed with certain countries had a negative impact on the country.
The Commerce secretary stated that there is an institutional shift of taking away import tariff policy from the Federal Board of Revenue (FBR) to the Ministry of Commerce. Tariff Policy Board is a recommendatory body to the Federal Cabinet which has taken the final decision on Finance Bill (2025-26).
The target of new National Tariff Policy is to reduce overall tariffs from 20.19 percent to 9.70 percent, readjustment of customs duties slabs to 4 slabs (0 percent, 5 percent, 10 percent and 15 percent) from existing 5 slabs in five years, reduction in customs duty to a maximum of 15 percent in five years, elimination of RDs/ACDs in five years and phasing out of Fifth Schedule of the Customs Act.
The existing additional customs duties (ADCs) slabs will be eliminated in four years, keeping in view the annual targets for reduction in ACD rates. The ACD rates would be reduced across 7,500 items with complete exemption for lower slabs. Few products at 35 percent Customs duty are subjected to auto sector policy, therefore, the auto sector ACDs will be eliminated gradually from July 1, 2026.
The existing regulatory duty slabs will be eliminated in five years, keeping in view the annual targets for reduction in RD rates. The maximum rate of RD is proposed to be reduced from 90 percent to 50 percent to rationalise excessive para-tariffs. RDs will be fully removed on 554 raw materials and intermediary goods. RD rate will be reduced on 602 goods. The notifications to implement these changes will be issued from July 1, 2025, he maintained.
Responding to a query, Paul stated that there is no upward revision of slabs of customs duties, DCs and RDs under the tariff reforms and only downward revision in import duties.
He said that the new tariff policy would also be applicable on auto sector like other sectors. Auto sector tariff will also be rationalised to enhance competitiveness, productivity and common welfare including removing quantitative restrictions on import of old and used vehicles. The new auto policy would be introduced from July 2026.
Finance Minister Muhammad Aurangzeb informed the committee that the tariff rationalisation is a big change and a permanent implementation committee has been constituted to monitor impact of tariff rationalisation on domestic industries as well as impact during transition period.
Copyright Business Recorder, 2025
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