Pakistan Will Reform Its Current Tariff Policy

In November 19, 2019, the cabinet of the Pakistan government approved the "national tariff policy" (hereinafter referred to as the "policy") to reform the national tariff management system and adjust the starting point of the tariff policy from increasing the state revenue to promoting trade and industrial development. The policy will be implemented in fiscal year 2020-2021. The main contents of the policy are as follows:

I. background

Experience from developing countries shows that countries that implement tariff structure reform and trade liberalization are developing faster. In the past ten years, 20 of the world's fastest growing economies have been lowering tariffs, but Pakistan's import tariffs have increased by 11%. In addition, Pakistan also imposed an import regulatory tax on the basis of normal tariffs, resulting in a further increase in Pakistan's actual tariffs. In the current 68 years of global exports of over 20 billion U.S. dollars, Pakistan's average tariff level ranks third.

The Pakistan government has always regarded tariff policy as a tool to increase the revenue of the state. This is the main reason for the high level of tariff in Pakistan. It also leads to a high reliance on import tariffs and impede the development of industry and trade to a certain extent. Over the past ten years, the proportion of Pakistan's industrial output to GDP has dropped from 26.4% in fiscal year 2010 to 20.3% in fiscal 2019, and the proportion of exports to GDP has decreased from 13.5% in 2010 to 7% in 2019.

Two, the purpose of reform

The core of the reform of the policy is to adjust the starting point of tariff making to promote export and industrial development. The new tariff policy will focus on optimizing tariff structure, reducing or even eliminating import tariffs on raw materials, enhancing the competitiveness of manufacturing and export oriented industries, improving transparency in tariff policy, promoting investment in manufacturing industry and increasing employment opportunities, reducing import tariff burden, improving consumer welfare, eliminating structural barriers to tariffs and easing distortions in domestic goods and international commodity prices.

Three, implementation principles

The implementation of the policy will follow the following principles: first, tariffs should be used as a national economic policy rather than a national income increasing tool; two, a simplified tariff structure and a reduction of tariff level; three, a ladder like tariff structure, a gradual reduction of taxes on manufactured goods, semi-finished products and raw materials; four, protection of immature industries, a balance between trade liberalization and domestic industrial development, and gradual withdrawal of protection measures as the infant industry grows; and five, a certain degree of import substitution policy to promote the development of domestic industries and manufacturing industries.

Four, institutional improvement

To implement the policy, the government will set up the TariffPolicyBoard (TPB) as the highest institution of the national tariff policy. The chairman of the committee will be chaired by the Minister of Commerce of Pakistan or the business consultant of the premier. The members include the Minister of industrial production, the Ministry of finance, the Secretary of the Ministry of industry, the Secretary of the Investment Commission, the chairman of the Federal Tax Commission (FBR), and the chairman of the National Customs Committee (NTC). In addition, the government will set up the TariffPolicyCentre (TPC) in the Ministry of Commerce as the Secretariat of the tariff policy committee, and make decisions by the specific executive committee. In the future, proposals for levying, modifying or cancelling tariffs must be examined by the customs policy center and submitted to the cabinet or parliament for approval after approval by the customs and taxation policy committee.