Pakistan's Auto Tariff Debate: A Credibility Test for the National Tariff Policy
Prime Comment #38
Pakistan’s auto sector has received some of the most substantial tariff protection in the country, with combined duties reaching as high as 156% on certain vehicle categories. The cabinet-approved National Tariff Policy pledged to lower this, setting the maximum customs duty at 15% by 2030 and eliminating regulatory duties. However, as the government attempts to finalise the Auto Policy for 2026-2031, the reform agenda has encountered opposition. The current auto policy expires by the end of June, but a formal draft of its replacement is not yet ready. The IMF has expressed concerns about some of the proposals of the auto policy, and the commerce and industry ministers remain divided on how far tariff cuts should go.
The heart of the issue is not the tariff schedule, but whether the government considers its own policy as binding. Reports suggest that the government is considering either reducing tariffs to 74% as per NTP or reducing customs tariffs to 74% and then imposing Federal Excise Duty (FED) on luxury vehicles above a certain price and capacity threshold to retain the same level of effective protection. The latter would be a reform in name only. Consumers will continue to pay the same inflated price; the assembler experiences no new competitive pressure, and the only thing that changes is which line item in the tax structure bears the burden. If the government takes this approach, it will have demonstrated that tariff rationalisation in Pakistan can be reversed as soon as it affects a powerful domestic industry.
This is especially difficult to defend because the NTP targets are not externally enforced. The NTP goes beyond the tariff rationalisation mandate of the IMF. The government voluntarily raised its own standards. Backing down would not be a compromise with the IMF; rather, it would be the government’s failure to keep its own promises. The inter-ministerial divide, industry pushing for continued protection and commerce arguing for NTP compliance, highlights a fundamental question Pakistan has never answered: is trade policy intended to facilitate consumers and competition or to protect incumbents from both? The claim that the 15% cap is not an IMF requirement is technically sound, but strategically counterproductive. It equates to advocating for the minimum adjustments required to keep the IMF program running, rather than implementing the reforms Pakistan actually needs.
If tariff reductions are selectively offset through new taxes on segments affected by liberalisation, it risks weakening the credibility of the National Tariff Policy. Once exceptions become the norm, long-term reform commitments gradually lose their meaning. Reforms are rarely painless, but their benefits emerge through consistency and predictability. Preserving policy credibility may ultimately prove more valuable than protecting individual segments from competitive pressure.