IMF says Pakistan’s tariff overhaul could halve import duties, lift exports by 11%

Pakistan’s planned tariff overhaul could sharply reduce import duties, lift exports, and modestly raise economic growth by the end of the decade, according to an International Monetary Fund country report released this week.

The IMF said Pakistan’s National Tariff Policy for 2025-30 lays out an “ambitious path for tariff reform”, including deep cuts in customs duties and the gradual removal of exemptions that have long distorted the trade regime.

The policy aims to simplify the tariff structure by reducing the number of customs duty slabs from five to four and cutting rates, with the top slab lowered to 15% by fiscal year 2030, the report said. It also calls for eliminating all additional customs duties over three years and regulatory duties over five years, while phasing out special duties listed under the Fifth Schedule by FY30.

“Full implementation of the NTP would cut average tariffs to about half their FY25 level,” the IMF said.

According to the report, measures introduced in the FY26 federal budget have already reduced trade-weighted average tariffs by nearly two percentage points, from 10.7% to 8.9%. If the policy is fully implemented, tariffs could fall further to between 6.7% and 5.3% by FY30, depending on how tariffs in the auto sector are treated.

Tariffs on automobiles will be addressed separately under a new auto sector policy due by July 2026. Still, the IMF said the government plans to align auto tariffs with the broader reform principles, including “substantial customs duty reductions” and the elimination of additional and regulatory duties.

Using trade and macroeconomic models, the IMF estimated that the reforms would have a positive — though moderate — impact on economic growth. Gross domestic product would rise by about 0.2% if tariffs remain at their reduced FY26 levels, and by as much as 0.7% if the full reform package, including auto tariffs, is implemented.

The impact on trade would be larger. The IMF projects nominal goods exports would grow by about 11% under full implementation, compared with 3% under the FY26 tariff structure. Imports would also increase, reflecting lower trade barriers and stronger domestic demand.

Sector-wise, the report said production would shift toward textiles and mining, while output in the auto sector would decline as protection is reduced.

Tariff revenues would fall under all scenarios, dropping an estimated 13% under the FY26 tariff regime and as much as 37% with full implementation. The IMF cautioned, however, that these losses could be partly offset by reducing exemptions and by higher collections from other domestic taxes as economic activity expands.