Pakistan’s outdated and protectionist tariff system is draining the economy of billions each year, warns a new Policy Viewpoint by the Pakistan Institute of Development Economics (PIDE). The report says the current structure is crippling industrial competitiveness and locking the country in a cycle of inefficiency.
The study, authored by Dr. Uzma Zia, Senior Research Economist at PIDE, is titled “Rationalizing Pakistan’s Tariff Regime for Export-Led Growth.” It argues that Pakistan must urgently reform its trade and industrial policies to support sustainable economic expansion.
According to the report, the existing tariff regime, dominated by Regulatory Duties (RDs), Additional Customs Duties (ACDs), and 5th Schedule exemptions, has long shielded inefficiency. These layers have distorted market signals, inflated production costs, and hurt both manufacturers and consumers. Export-oriented industries, it adds, face a serious disadvantage due to 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,” warns Dr. Zia.
The upcoming National Tariff Policy (NTP) 2025–30 offers a reform roadmap. It aims to remove ACDs within four years and RDs within five. It also plans to shift products from the 5th Schedule to the 1st Schedule. If implemented effectively, PIDE estimates exports could rise by 10–14%. The reforms could also improve competitiveness, reduce the trade deficit, and ease inflation through lower input costs.
To reach these goals, the study proposes simplifying the customs duty structure from five slabs to four: 0%, 5%, 10%, and 15%, within five years. It also recommends phasing out tariff peaks above 20%. Duties should be aligned by product category: lowest on raw materials, moderate on intermediates, and highest on consumer goods. This approach would promote industrial upgrading and attract investment in high-value sectors.
PIDE also urges reforms in the auto sector under the Automotive Industry Development and Export Plan (AIDEP 2021–26). It calls for lower tariffs, removal of ACDs and RDs, and controlled imports of used vehicles that meet environmental and quality standards.
The study warns that pushback from protectionist industries and global shocks, such as commodity price swings and exchange rate volatility, could slow progress. However, it stresses that inaction would cost far more through lost investment, stagnant exports, and continued consumer hardship.
“Tariff reform is not just an economic necessity; it is a national imperative,” Dr. Zia said. “Simplifying tariffs, eliminating distortions, and aligning policy with long-term growth goals can reshape Pakistan’s economic future.”
PIDE concludes that Pakistan is at a critical turning point. Embracing tariff rationalization and aligning trade policy with global competitiveness could shift the economy from revenue-driven protectionism to export-led growth.