The government has approved a major reduction in import taxes totaling Rs120 billion in the upcoming budget, aiming to boost foreign competition and liberalize the economy. Prime Minister Shehbaz Sharif backed the move despite opposition from the Ministries of Commerce and Industries, which warned of risks to local manufacturing and the balance of payments.
Supported by the Finance Ministry and FBR, the plan will be rolled out over five years, cutting the number of customs duty slabs from five to four (0%, 5%, 10%, and 15%). The current 20% slab will be phased out. The overall revenue impact of the full plan is estimated at Rs512 billion.
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In the first year, revenue losses will amount to Rs120 billion, with Rs100 billion due to changes in slab rates. Additional customs duties will be removed over four years, while regulatory duties will be eliminated in five. Some tariff lines will shift to the new 5% slab, helping recover around Rs70 billion.
Despite economic liberalization goals, concerns remain about a potential rise in the trade deficit. The Finance Ministry estimates that every 1% tariff cut could widen the deficit by 1.7%.
