In an effort to revive its weak export performance, Pakistan has unveiled an ambitious five-year tariff reform plan aimed at lowering import duties and removing protectionist barriers. The government hopes these changes will drive export-led growth and attract greater investment in key sectors.
But with entrenched industries already pushing back and a history of policy reversals, the success of this plan will depend on whether the government can stay the course and deliver sustained reforms.
In a fresh attempt to boost its struggling export sector, Pakistan has approved a five-year tariff reform plan that aims to raise exports by $5 billion by 2030. The plan, which will be presented in the upcoming 2025-26 federal budget, was recently cleared by Prime Minister Shehbaz Sharif.
The government hopes the new policy will help Pakistan transition from an import-substitution model to one driven by export-led growth. A key element of the plan is the reduction of the average tariff rate from 19% to 9.5% over five years. The current complex structure of tariff slabs—0%, 3%, 11%, 16%, and 20%—will be replaced with a simplified and more transparent structure of 0%, 5%, 10%, and 15%.
Additionally, the maximum tariff rate will be capped at 15%, removing sector-specific peaks that currently exceed 20%. Additional customs duties, which range from 2% to 7%, will be phased out within three to four years. Regulatory duties—currently ranging between 5% and 90%—will also be eliminated gradually. The 5th Schedule of Customs, which offers industry-specific tariff concessions, will be dissolved, with products moved into the general 1st Schedule to create a level playing field.
Studies by the IMF and World Bank provide strong empirical evidence that reducing tariffs can help countries grow their exports
This reform comes as Pakistan’s export performance continues to lag behind its regional peers. According to the World Bank’s recent report From Inward to Outward: Pakistan’s Shift Towards Export-led Growth, Pakistan’s exports have dropped from over 15% of GDP in the 1990s to just over 10% in 2024. In contrast, India’s exports account for 29.35% of GDP, Sri Lanka’s for 20.5%, and Bangladesh’s for 13.2%.
Experts argue that Pakistan’s existing trade policies have contributed to this poor performance. Over the past decade, the country raised import tariffs and added new duties to protect local industries and generate revenue. But these measures have created distortions in the market, reduced firm productivity, and weakened export competitiveness.
Pakistan’s export base remains narrow—dominated by textiles—and largely dependent on a few markets: the US, EU, UK, and China. Notably, despite the China-Pakistan Free Trade Agreement, Pakistan’s share of China’s $2.7 trillion import market is just 0.1%.
The new tariff reforms will complement the government’s Uraan Pakistan initiative, launched in 2024, which aims to achieve export-led GDP growth of 6% by 2028. The program focuses on fostering public-private partnerships and investing in high-potential sectors such as agriculture, IT, and renewable energy.
Recent economic indicators offer some cautious optimism. According to the IMF, Pakistan’s current account deficit narrowed to around $1 billion during July-February FY24, down from $3.8 billion in the same period a year earlier. The country’s first National Tariff Policy (2019-24) had already begun simplifying the tariff structure and provided duty-free access for imported inputs.
The State Bank of Pakistan also reported a current account surplus of $1.2 billion in the first half of FY25, compared to a $1.6 billion deficit a year ago. This was largely driven by a surge in workers’ remittances. While exports of high-value textiles, rice, petroleum products, pharmaceuticals, and plastics grew, these gains were offset by rising imports of machinery, chemicals, and agriculture-related goods.
Yet despite the positive signals, skepticism remains. Pakistan is currently in its 24th IMF program and has promised economic reforms many times in the past—with limited results. Trade experts warn that Pakistan’s high import taxes have historically made its economy inward-looking, discouraging exports and stifling competition.
This is yet another attempt to boost exports. However, resistance is already mounting. Many sectors that have long relied on protective duties to stay competitive argue that the government’s new national tariff policy is putting domestic industry at risk. Industry stakeholders warn that the move could have a disastrous impact on local manufacturing. In particular, auto assemblers and parts manufacturers fear that lower tariffs will undermine domestic production and could ultimately push them toward increased reliance on imports.
Studies by the IMF and World Bank provide strong empirical evidence that reducing tariffs can help countries grow their exports. Countries like Vietnam and Bangladesh saw sharp export growth after cutting tariffs, showing that such reforms can boost competitiveness in global markets. Pakistan’s new tariff plan draws on this experience, but its success will hinge on more than just lowering duties.
The government will need to manage strong resistance from domestic industries that have long benefited from protective barriers. It must also demonstrate patience, as short-term import increases are likely to occur before any export gains materialise. Importantly, tariff reform alone will not be enough. Broader economic reforms—improving productivity, easing the cost of doing business, upgrading infrastructure, and ensuring policy consistency—will also be essential to achieving lasting export growth.
With the reforms set to begin on July 1, the key question is whether the government can stay the course this time, or whether it will once again retreat under pressure.