Govt cuts Rs. 120B Import tax, keeps Auto sector untouched

Prime Minister Shehbaz Sharif has approved a Rs. 120 billion reduction in import taxes for the FY26 budget, as part of efforts to revise the customs structure and enhance economic competitiveness.

The decision seeks to restructure import duties and gradually expose the domestic market to increased foreign competition over the next five years.

Despite this sweeping reform, the automobile sector will not benefit from any reduction in import duties. The Prime Minister has excluded automobile imports from the relief, keeping their existing duties unchanged.

What’s Changing in the Tariff Structure?

The government plans to streamline the customs duty slabs from five to four, adjusting the structure as follows:

• 0%, 5%, 10%, and 15% will be the new standard slabs.
• The 3% slab (972 items) will be scrapped.
• The 11% slab (1,121 items) will be brought down to 10%.
• The 16% slab (545 items) will shift to 15%.
• The 20% slab (2,227 items) will be phased out over time.

In addition:

• Additional customs duties will be removed over the next four years.
• Regulatory duties will be abolished over five years.

Mixed Reactions from Ministries

While the Finance Ministry and Federal Board of Revenue (FBR) are on board with the overhaul, the Commerce Ministry has voiced concern. Officials argue that reducing import duties in this manner may not align with existing tariff principles and warn that any benefits could be offset by high energy and input costs, which continue to burden local manufacturers.

The Prime Minister also dismissed a proposal to introduce six duty slabs. Instead, he opted for a flatter tariff structure, believing it would offer a better shot at enhancing export competitiveness in the long run.