Pakistan commits to reduce tariffs for trade liberalisation

The Pakistani government has agreed to a key demand from the International Monetary Fund (IMF) to open its economy to foreign competition. This will involve reducing average import tariffs by one-third over the next five years, bringing them down to 7.1%. The focus will be primarily on the minerals and automobile sectors. Pakistan's agreement with the IMF is a crucial step toward finalizing a $1 billion loan deal. The government expects that while cutting tariffs will initially result in a drop in tax revenues, it will also boost economic activity and trade. To implement this, Pakistan will abolish extra customs duties and significantly reduce regulatory duties. The weighted average applied tariffs, currently at 10.6%, will be lowered to 7.1% starting this July, with full implementation expected by 2030. The automobile sector will see major changes, with tariffs on cars set to decrease substantially. The government is also committed to eliminating protections for the auto industry and rationalizing tax structures in this sector. While many countries are tightening their borders, Pakistan is moving towards liberalization. However, Pakistani businesses have traditionally operated under protective tariffs, which may challenge their ability to compete in a more open market. The government aims to submit this new tariff policy for cabinet approval by the end of June, and tax reductions will feature in the upcoming budget presentation. Officials believe that increased trade flows could ultimately boost tax revenue and economic growth significantly over the coming years.