Commerce Secretary Affirms Tariff Policy Alignment Amid Auto Policy Delays
The government is scrambling to finalize a new auto policy as the current one expires on June 30, with the commerce ministry insisting that vehicle tariffs are being set in line with the National Tariff Policy (NTP). Commerce Secretary Jawad Paul told the National Assembly Standing Committee on Finance that the principles of trade liberalization outlined in the NTP are being followed. If fully implemented, customs duties on cars, jeeps, and their parts could be slashed by 25% to 50%, according to a presentation shown to the committee.
Paul stated, "The auto tariffs are being determined while duly taking into account the principles laid out in the National Tariff Policy." The meeting was chaired by PPP's Syed Naveed Qamar. The commerce ministry has proposed cutting the maximum customs duty rate by half to 50%, reducing additional customs duty by 2% per slab, and lowering regulatory duty to just 20% by fiscal year 2026-27. This would bring the total maximum tariff limit to 74%, down from the current 156%.
82% Gap Sparks Inter-Ministerial Dispute and IMF Concerns
Sources revealed that the 82% difference between current tariffs and the proposed 74% cap is a major point of contention, delaying the finalization of the new Auto Policy 2026-31. The International Monetary Fund (IMF) has not endorsed some proposals, and divergent views exist within the government. The government had proposed to the IMF that sales tax on hybrid vehicles should be 50% of the levied rate, and only 1% sales tax on new energy vehicles. However, due to inter-ministerial disagreement and IMF objections, implementing the new policy before the June 30 deadline is becoming increasingly difficult.
The National Assembly approval of new tariffs is unlikely before June 24. The government is considering two options: reduce tariffs to 74% in line with the umbrella tariff policy, or cut tariffs to 74% but impose an 82% federal excise duty to maintain protection. The second option would deviate from the auto policy, sources added. The standing committee may make recommendations on Sunday.
Detailed Tariff Reductions Under NTP for FY2026-27
Paul assured the committee that there is no deviation from the approved NTP so far, and proposals for the second year (FY2026-27) are on track. He said, "The current maximum tariffs are 156% that will be brought down to 74%." The reductions apply to most of the 7,590 tariff lines. Specifically, customs duty on auto parts would fall from 35% to 25%. On cars and jeeps up to 800cc, rates drop from 50% to 30%; up to 1,000cc from 55% to 35%; up to 1,500cc from 60% to 40%; up to 1,800cc from 75% to 45%; and above 1,800cc from 100% to 50%.
Sources indicated that the Prime Minister's Office does not want price reductions for expensive vehicles over 2,000cc, and one option is to impose federal excise duty on them. The industry ministry favors higher import duties on locally assembled vehicles, while the commerce ministry wants to implement the NTP, which caps maximum customs duty at 15% by 2030. The industry ministry argues the 15% cap was not an IMF condition; the IMF only requires a weighted average tariff below 6%, achievable even with duties as high as 50%.
Long-Term Tariff Targets and Revenue Impact
According to the cabinet-approved policy, customs duties of 20-50% for FY2026-27 will fall to 15% by 2030. The current 20% duty slab will become 10%, and the 15% slab will drop to 5%. Paul informed the Senate committee that under the five-year NTP, simple average tariffs are targeted to reduce to 13% from July, but actual tariffs will be 13.77% due to less reduction last year and adjustments. Last year, tariffs were cut to 16.56%. The total revenue impact of duty reductions in the second year of tariff reforms is Rs143.4 billion.
Responding to a question, Paul said the Engineering Development Board has recommended leveling tariffs for locally made, imported, and used cars to ensure equal opportunities. He added, "The IMF has allowed keeping the regulatory duty rate to 80% but the government approved abolishing it in five years. The IMF did not set the upper cap for customs duty but the government approved reducing it to 15% by 2030."
