In a major step towards structural reforms, the federal government has eliminated additional customs duties on 4,000 tariff lines out of a total 7,000, and also reduced duties on a further 2,700, Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb announced on Wednesday. Speaking at a post –budget press briefing, Aurangzeb described the tariff rationalisation as a “major and important step” in aligning Pakistan’s trade and industrial policy with global standards.

The initiative, he said, marks the beginning of a phased plan towards a simplified tariff regime, ultimately targeting an average tariff rate of just over 4 per cent. “Overall, there are 7,000 tariff lines. Additional customs duty has been removed on 4,000 lines, and in 2,700 of those, the customs duty has also been reduced,” the finance minister explained. “Of these, around 2,000 tariff lines are directly linked to raw materials and intermediary goods used by the exporters.” 

“This is a structural reform that hasn’t been undertaken in the past 30 years. This is a huge step, and we’re committed to taking it forward gradually.” The government’s broader goal, according to Aurangzeb, is to reshape Pakistan’s tariff architecture in a way that supports industrial growth and integrates the economy more deeply into global supply chains. 

The minister said, the tariff reforms were more than a fiscal measure, they mark a fundamental shift in Pakistan’s economic model, aimed at dismantling the long-standing protectionist regime and laying the foundation for sustainable, export-led growth. Highlighting the significance of the policy shift, Aurangzeb said the reduction and elimination of customs duties on thousands of tariff lines will enable more efficient allocation of both capital and human resources within the economy.

 “This is not just about reducing duties—it’s about transforming the overall macroeconomic framework,” the minister stated. When we bring down protection, we improve resource allocation, which is crucial for economic efficiency and competitiveness. The reforms are designed to gradually replace import substitution with export promotion, a pivot the government considers essential for addressing Pakistan’s recurring balance of payments crises and dollar liquidity pressures. 

“If we want to structurally reposition the country towards export-led growth, we need to change the very DNA of the economy,” Aurangzeb said. “That’s how we avoid falling into the same cycle of dollar shortages every time we try to grow.” The minister touched on broader fiscal measures aimed at ensuring equity and sustainability, particularly for salaried individuals and mid-sized businesses.

He noted that the government has offered as much relief as possible to the salaried class within the constraints of available fiscal space. “This is the direction of travel, where do we want to take the salaried class?” he said. “Different slabs, including at the highest levels, have been carefully considered. From both my perspective and the Prime Minister’s, we provided as much relief as the fiscal space allows.”

 He also pointed to the phased reduction of the super tax on mid-sized corporations as part of the government’s commitment to improving the business climate. “Even if it’s just a 0.5% reduction, it sends an important signal to the market,” Aurangzeb added. The government, he said, announced a series of targeted reforms in the construction and agriculture sectors aimed at reducing transaction costs, supporting affordable housing, and ensuring credit access for small farmers. 

Addressing recent concerns around construction-related taxes, the minister clarified that while overall tax liability has not been reduced, the government restructured the system to lower transaction costs, particularly for buyers. In a bid to promote homeownership, the government is also prioritizing access to mortgage financing.

“As important as the fiscal side is, access to credit is equally important,” the minister said. He informed that, in collaboration with the State Bank of Pakistan, the government is preparing to launch a new housing finance scheme to enable individuals to build homes through accessible credit. On the agriculture front, Aurangzeb described this sector as a crucial one for economic growth.

He clarified that additional taxes on fertilizer and pesticide were to be implemented last June, however government negotiated with International Monetary Fund (IMF) and got it delayed till this year. The minister said, strengthened enforcement mechanisms have helped the federal government generate over Rs400 billion in additional revenues this fiscal year.

He noted that while international stakeholders had previously doubted Pakistan’s ability to implement tax laws effectively, the government has now demonstrated that meaningful enforcement is possible. He said, tax-to-GDP ratio was projected to reach 10.4% this year and to 10.9% in FY2025-26. As part of the broader reform agenda, the government is preparing to move forward with a legislative push, engaging both houses of Parliament to introduce amendments aimed at strengthening tax enforcement.

Aurangzeb emphasized that legal backing will be critical to institutionalize compliance and sustaining revenue growth. To a question, the minister said, the increases in salaries and pensions were directly linked to the headline inflation, Consumer Price Index (CPI), ensuring adjustments reflect inflationary pressures. He reaffirmed the government’s commitment to agriculture as the central engine of economic growth, with a particular focus on dairy and livestock, which account for 60% of the sector’s GDP.

“Agriculture has been, and will remain, the backbone of our economy,” he said, adding that greater federal policy coordination is needed on devolved subjects like seed technology, mechanization, and agri-financing. On the fiscal front, he reported a modest 1.9% rise in government expenditure, crediting prudent financial management. He said, despite inflation at 7.5%, the government managed to contain subsidies and reduce debt servicing, while selectively increasing spending where necessary for national priorities, Aurangzeb said. 

Credit: Independent News Pakistan (INP)