Latest news with #NationalTariffPolicy
Business Recorder
a day ago
- Business
- Business Recorder
Budget FY26: fiscal discipline without reform
Fiscal consolidation continues. FY26 is expected to be the third consecutive year of a primary fiscal surplus. This should help lower the public debt-to-GDP ratio and provide some cushion for future growth. However, economic strangulation is also likely to persist, as the government remains reliant on higher direct taxes without offering any relief to salaried individuals or the corporate sector. This is not going to be a revolutionary budget. It is simply a continuation of policies already agreed upon with the IMF. Pressure on tax revenues will remain. As interest rates decline, banks and depositors' incomes will fall — dragging down the corresponding tax collections. Income from the oil and gas sectors may decline due to reduced domestic production (to accommodate imported RLNG) and subdued global prices. Fertilizer sector margins are expected to stay suppressed. Consequently, direct tax collection at current rates may be lower in FY26 compared to key contributors the preceding year. Meanwhile, the IMF is pushing for implementation of the National Tariff Policy (NTP), but the government is hesitating. The FBR is concerned about lower collections from customs duties. The question, then, is how to plug the fiscal gap. The standard response is to go after retailers and wholesalers and talk of expanding the tax net. History suggests these efforts rarely yield results. There are gaps in the revenue framework. This is why the IMF has not agreed to reducing the effective tax burden on salaried individuals or to scrapping the super tax on corporates. The Federal Excise Duty (FED) on certain items is likely to be increased — or newly imposed, including on cigarettes and ultra-processed foods. But without better enforcement, these measures will only push more activity into the informal economy. Already, the formal footprint in sectors like dairy and fruit juice is shrinking due to recent indirect tax hikes. Poor governance and the prevalence of other taxes will dilute any benefit from reducing import tariffs. While economic theory supports lower tariffs to disincentivize smuggling, other taxes create perverse incentives. For example, the FBR collects withholding tax (WHT) and sales tax at the import stage, followed by GST and FEDs on final products. Ideally, these taxes should also be reduced — but that is wishful thinking. In fact, the FBR is proposing new, unconventional taxes — such as a 1.5 percent WHT on all imports. If the NTP is implemented, lower import prices may drive up import volumes, increasing pressure on the PKR. In response, the FBR may increase GST or FED on selected goods, such as automobiles. One area urgently needing reform is the customs department. Rampant under-invoicing not only erodes tax revenue but also undermines domestic manufacturing. Without fixing this, the effectiveness of the NTP will be limited. The FBR, however, appears desperate. There is already a shortfall of Rs 1 trillion in tax revenue during the first 11 months of FY25, and meeting the FY26 target will be even more difficult. As always, the burden will fall on the already-taxed formal sector. Non-tax revenues are expected to perform well. The SBP is likely to post another bumper year of profits, driven by over Rs 13 trillion in open market operation (OMO) injections. Last year, the SBP contributed Rs 2.5 trillion to non-tax revenues, and a similar figure is expected this year. The government is also relying on petroleum levy, which already stands at around Rs 80/liter and may be increased to Rs 100/liter. Additionally, a carbon levy of Rs 5–10/liter is under consideration. There is limited space for expenditure cuts, aside from some savings in interest payments on debt. The government has reportedly secured IMF approval for a significant increase in defence spending. However, negotiations are ongoing regarding the size of the development budget. Regardless of what is initially allocated, it is likely to be trimmed later if tax revenues from retailers and the real estate sector do not materialise. In conclusion, the upcoming FY26 budget reflects a cautious, IMF-driven approach—prioritizing fiscal consolidation over transformative change. While primary surpluses and robust non-tax revenues, bolstered by SBP profits and petroleum levies, offer some macroeconomic stability, the continued reliance on existing taxpayers and indirect taxes risks stifling growth and further entrenching informality. Without bold reforms—particularly in customs enforcement and tax administration—structural weaknesses will persist, limiting the effectiveness of flagship measures like the National Tariff Policy. Though lower commodity prices and fiscal discipline may support modest growth in FY27 and FY28, the absence of meaningful structural change leaves Pakistan's fiscal trajectory precariously balanced. Copyright Business Recorder, 2025
The Print
3 days ago
- Business
- The Print
Pakistan's economic reforms a pushback against elite but it may backfire
For many, it is a 'wake-up call'. But at the same time, the script is all too familiar. Economic crisis, an eleventh-hour bailout from the International Monetary Fund (IMF), and a promise of sweeping reforms that mostly tank. It is Pakistan's 26th engagement with the IMF in 66 years. Though the government hails the reforms as a 'historic step', economists, industry bodies, and editorials in national dailies have met them with cautious optimism, tempered by warnings of potential economic disruptions. New Delhi: A crippling economy, an impatient IMF and a recent military conflict with India that exposed its vulnerability has introduced a sense of urgency in Pakistan vis a vis economic reform. Tariffs are being slashed. State enterprises are being privatised. Even the agriculture sector, long protected by subsidies and loopholes, is being pulled into the tax frame. 'The recent war with India has added further momentum to the reform efforts. This is because there is a clear belief in Pakistan that the country faces a real and existential threat emanating from the east,' Uzair Younus, Principal at The Asia Group, a strategic consulting firm based in Washington DC, told ThePrint Trade and tariff overhaul The centrepiece of Pakistan's latest reform drive is a dramatic overhaul of its trade and tariff policy. Starting 1 July, the government will begin reducing customs duties and tariff rates across thousands of products, and phasing out protectionist barriers that have shielded local industries. The goal, government officials say, is to push exports, bring foreign investment, and modernise a muted industrial growth. According to the new plan under National Tariff Policy 2025–30, the average import tariff will be halved from 19 per cent to 9.5 per cent over the next five years, with high-impact sectors such as auto, steel, textiles, and plastics facing major disruptions. Economists are calling it a 'pushback against elites in Pakistan'. 'Pakistan's slew of reforms is a 'wake-up call' and has seen greater momentum post the India-Pakistan conflict. It is also a pushback against the elites in Pakistan who have always downplayed reforms,' said Younus. According to Younus, Pakistan has had many IMF bailouts in the past, but its ruling elites have always had the agency to resist reforms under pressure. 'This time around, the likelihood of these reforms going through is higher because this is something senior leaders in the government believe in,' he added. Also read: TLP chief tells Pakistanis to take up arms against India. People call him rioter & a sell-out The skepticism Pakistan's Finance Minister Muhammad Aurangzeb has described the reforms as vital to building an export-oriented economy. Prime Minister Shehbaz Sharif has also championed the effort, calling it 'a new economic direction.' But not everyone is convinced. 'Industry is at a loss for words when describing what is about to happen. The plan is a radical one, no doubt. It may sound fine, but it does run the risk of turning Pakistan into a trading economy, since it will undoubtedly gut large sections of manufacturing, but may or may not spur exports in the way its proponents expect,' Pakistani business journalist Khurram Hussain wrote in a Dawn article. 'Frankly, I am not convinced that the economy can withstand the shock, especially to the reserves, that could come from the sudden surge of imports such a step could trigger,' he added. The IMF's fingerprints are unmistakable on Pakistan's reform push. The country is currently under review for the release of the final tranche of a $7 billion loan programme, and the IMF has made privatisation and structural reform non-negotiable conditions. The IMF projects Pakistan's economy will grow 2.6 per cent this fiscal year, rising to 4.5 per cent annually by 2030, driven by planned fiscal reforms and policy commitments aimed at long-term stability— but only if it adheres to every item on the checklist. The tariff overhaul is a balancing act that is expected to disrupt industries long shielded from global competition, and has few takers for now. Critics have labelled it a 'death knell'. 'For a large number of industries that rely on these duties to make their products competitive against imports, this is nothing short of a death knell. The government is doing this in what it says is a bid to spur exports. The affair began as a duty reduction plan for raw materials and intermediate goods used in exports, but grew in scope as it travelled through the process of consideration and approval until it became a robust trade liberalisation plan,' Husain pointed out. The Pakistan government has yet to release a detailed impact assessment. Critics say this lack of transparency, especially regarding potential job losses and foreign exchange outflows, risks turning a sound economic idea into a political liability. Even Dawn, which called the plan 'a major positive shift' in its editorial, warned that unless accompanied by structural reform and improved governance, the policy could falter. Other concerns loom. Customs evasion, under-invoicing, and smuggling are already rampant. Weak enforcement could allow liberalisation to reward bad actors while penalising compliant businesses. 'The concern is not the policy, it's the capacity to implement it,' Pakistani economist Javed Hassan told ThePrint. 'Without strong governance and investment in human capital, this could backfire badly,' he added. Short-term risks Pakistan's economy is under strain across the board. The power sector is crippled by circular debt, agriculture remains low-yield and untaxed, PIA, the national carrier, is buried in losses, and manufacturing suffers from outdated protectionist policies. State-run banks are inefficient, and food markets are distorted by subsidies and smuggling. Decades of mismanagement and elite capture have entrenched a system built to serve the few. A 2021 United Nations report estimated that Pakistan's elite, including the corporate sector, feudal landlords, political class, and military, receive economic privileges worth $17.4 billion annually, about 6 per cent of the country's GDP. The Business Recorder, an English-language daily in Pakistan, called the reforms 'Pakistan's last real chance to get it right.' But it also warned that failure to crack down on under-invoicing and GST evasion could reverse the reforms. 'There's a growing segment of elites in the country who now accept that the old ways cannot be sustained. As a result, we are seeing a reform orientation across sectors, although it is slow. The downside is that the status quo economy is great for a narrow segment of the elite,' Younus said, underlining the downside. 'The resistance is likely to be real and persistent, and it'll be up to the government and the military to not lose sight of the reasons why the status quo cannot be sustained,' he added. That resistance is already visible. Business groups like the Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) are warning of mass layoffs. Meanwhile, the Karachi Chamber of Commerce and Industry (KCCI) has cautiously supported the reforms, pointing out that high tariffs have only encouraged smuggling, especially in auto parts, where the black market now accounts for an estimated 60 per cent of sales. 'The reduction of import barriers may widen the trade deficit in the near term, but as research has shown, import barriers are effectively a tax on exports. The way to manage the near-term pressure is to use the market-determined exchange rate as the first line of defence. Over time, the economy will adjust and things will fall into place,' Younus said.
Business Recorder
3 days ago
- Business
- Business Recorder
Industrial raw materials: Proposals for duty cuts to be submitted to PM
ISLAMABAD: Prime Minister's Special Assistant on Industries and Production, Haroon Akhtar Khan will submit proposals for reducing duties on industrial raw materials for the FY 2025–26 budget to Prime Minister Shehbaz Sharif on Monday. The Prime Minister had earlier constituted a Committee on Industry, headed by Haroon Akhtar, to formulate proposals regarding duties and taxes across various sectors. The committee convened on May 24, 2025, to deliberate on different recommendations for tariff and duty reductions. These proposals will be formally submitted to the Prime Minister on June 2, 2025, revealed Faiz Ahmad Chadhar, Chief Executive of the Trade Development Authority of Pakistan (TDAP), during a session of the National Assembly Standing Committee on Commerce. The meeting of the Standing Committee, chaired by Jawed Hanif Khan, addressed several issues related to the Ministry of Commerce. Secretary Commerce, Jawad Paul, led the ministry's delegation. National Tariff Policy: govt approves phased elimination of import duties Dispelling concerns about external influence, Secretary Commerce stated there was no pressure from the International Monetary Fund (IMF) for tariff rationalization. 'Things have progressed significantly since March 2025, and tariffs are being rationalized under the FY 2025–26 budget.' The Commerce Ministry has also been instructed to present a detailed briefing on the National Tariff Policy, and the measures taken to achieve the Prime Minister's $60 billion export target. The Committee discussed reasons for the ban on export and import of gold and gemstones which has irritated those in the business. It was apprised that on May 7, 2025 a ban was imposed abruptly on export of gold including consignments in transit. 'Stakeholders informed the committee that the sudden ban had caused severe disruptions, particularly to consignments already in transit, 'said one of the gold businessmen from Karachi. Secretary Commerce Jawad Paul stated that a committee has been constituted to review the abrupt 60-day ban on the export and import of gold and gemstones. He explained that the ban was implemented on the recommendation of the State Bank of Pakistan (SBP). The committee chaired by the Secretary has already held several meetings to examine the issue thoroughly. It is expected to recommend that the government allow the entry of consignments that were already in transit when the notification was issued. He further suggested that the matter be discussed in more depth at the next meeting, with representatives from the SBP and the Federal Board of Revenue (FBR) in attendance. On the issue of fumigation of export-bound consignments, MNA Sharmila Farqui informed the committee that rice exporters are being harassed by the Directorate General of the Department of Plant Protection (DPP). She alleged that the department was using pest-control methods involving banned Indian-origin pests, and that officials were opening rice consignments, apparently under the orders of the Director General. A representative from the Rice Exporters Association of Pakistan (REAP) acknowledged that conditions had somewhat improved for rice exporters but noted that several issues still frequently hamper exports. In response, DPP Director General Tahir Abbas informed the committee that the government had recently cancelled the licence of a company holding 60% market share for using Indian pests in rice fumigation. He defended the department's strict enforcement of phytosanitary measures, citing a significant reduction in shipment interceptions. Chairman of the Standing Committee, Jawed Hanif Khan, instructed the DG to maintain strict oversight of departmental operations to ensure that exporters are not mistreated by staff. Additionally, the Juice Manufacturers Association requested duty drawbacks on incremental exports in the upcoming budget, claiming such measures could help double export volumes in the coming years. According to official statement, the meeting reviewed the progress of key legislative measures and addressed pressing trade-related matters to enhance Pakistan's commercial landscape. It discussed the previous issue of disruptions in the export of rice. Emphasising the importance of resolving this matter, the committee urged the Department of Plant Protection to enhance its administrative oversight, particularly concerning container inspections and related procedures. The Committee was assured that efforts were actively underway to address these challenges, with a commitment to minimising, if not eliminating, future disruptions in rice exports. The committee also discussed the Suspension of SRO 760. The chair emphasised that the suspension of the SRO was a decision of the Federal Cabinet, and only the Cabinet could reinstate it. However, interim relief for pipeline issues remained a priority, and the Ministry had already made necessary requests for such relief. On discussions regarding granting special relief/ rebate by the government to food exporting companies it was noted that this incremental tax rebate would assist generating additional revenue for the country. The committee decided to forward the matter to the Federal Board of Revenue for further deliberation. The committee reviewed 'The Export Development Fund (Amendment) Bill, 2025', (moved by Muhammad Mobeen Arif, MNA), and 'The Trade Development Authority of Pakistan (Amendment) Bill, 2025', (moved by Usama Ahmed Mela, MNA) in depth and decided to constitute a Sub-Committee for detailed deliberation on the bills after the expiration of the previous Sub-Committee therefore, pending the bills till then. The committee decided to hold a detailed briefing on the Pakistan National Tariff Policy in the next meeting. It was stressed that tax liberalisation should not be extended to finished goods and luxury items, ensuring that the focus remained on sectors that aligned with national economic priorities. The proposal for liberalising raw materials and machinery imports to support industrial growth and to enhance productivity was also discussed in the meeting. The meeting was attended by MNAs, Muhammad Mobeen Arif, Usama Ahmed Mela, Shaista Pervaiz, Dr Mirza Ikhtiar Baig, Muhammad Atif, Tahira Aurangzeb, Khurshid Ahmed Junejo, Kiran Haider, Mir Amir Ali Khan Magsi in person whereas, Asad Alam Niazi, Rana Atif, Muhammad Ali Sarfaraz, Farhan Chishti, MNAs and Sharmila Sahiba Hishaam Faruqui, MNA/ Special Invitee attended the meeting virtually. Senior officers from the Ministry of Commerce, the Ministry of Law and Justice and the Ministry of National Food Security and Research were also present in the meeting. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Automotive
- Business Recorder
PAAPAM concerned at proposed National Tariff Policy 2025-30
LAHORE: The Pakistan Association of Auto Parts Manufacturers (PAAPAM) convened an extraordinary general meeting to discuss the government's proposed National Tariff Policy 2025–30. Members expressed grave concerns over the policy's anticipated negative impact on the auto parts manufacturing sector, warning that its implementation could lead to widespread industry closures and severe job losses. The PAAPAM leadership briefed members on a series of meetings held with the Ministry of Industries and Production (MOIP) and the Engineering Development Board (EDB) to highlight the damaging effects of the tariff rationalisation. The members condemned the unilateral acceptance of recommendations from IMF Consultants, reiterating that such a move fails to account for the fundamental role of the auto parts sector in supplying components to Pakistan's local OEMs—supporting the production of cars, tractors, motorcycles, trucks, buses, and defense/railway equipment. Industry stakeholders emphasised that the proposed tariff reduction would shift Pakistan's economy towards imports rather than local industrialization, deepening reliance on foreign products and depleting the country's already limited foreign exchange reserves. They warned that this policy threatens economic stability, as the financial resources needed for industrial growth will instead be drained by excessive imports. Furthermore, the PAAPAM members highlighted that the auto parts industry serves as a critical training ground for human resource development, equipping skilled workers with engineering and industrial expertise. These trained professionals often secure overseas employment, contributing to national remittances and global workforce competitiveness. The closure of domestic industries due to the tariff change would effectively halt this human resource development pipeline, leading to a shortage of skilled labor and restricting opportunities for Pakistan's workforce in international markets. 'We urged the government to adopt a strategic and structured approach to tariff adjustments instead of implementing abrupt changes that destabilize the industry,' said PAAPAM Chairman Usman Aslam Malik. 'The livelihoods of thousands of skilled workers and the long-term sustainability of Pakistan's industrial sector depend on a policy that nurtures local manufacturing rather than exposing it to unfair competition from imports.' Echoing this sentiment, PAAPAM Senior Vice Chairman Shehryar Qadir emphasised the critical need for an inclusive and well-informed policy framework. 'Pakistan's auto parts industry has worked tirelessly to enhance quality, innovation, and efficiency,' he stated. 'A sudden tariff reduction would undo decades of progress and place local manufacturers at an unfair disadvantage against international suppliers. The government must prioritize industrial sustainability through policies that foster growth rather than hinder it.' The PAAPAM remains committed to constructive engagement with policymakers to ensure an industrial framework that supports local manufacturers, preserves jobs, and strengthens Pakistan's economic resilience. The association calls for establishing a balanced and sustainable tariff structure after consultation with industry stakeholders. Copyright Business Recorder, 2025
Business Recorder
4 days ago
- Business
- Business Recorder
Policies go dumb and dumber
The Government of Pakistan has recently allocated 2,000 MW of electricity to support Bitcoin mining and AI data centers. This move is said to be the first phase, suggesting that further allocations may follow. Without debating the merits or drawbacks of cryptocurrency mining or AI infrastructure, the key question is: Why is the government picking this sector as a 'winner' by offering preferential treatment? This decision stands in stark contrast to the government's broader economic policy direction. Across the board, energy subsidies and preferential allocations—whether for electricity or gas—have been withdrawn from industrial sectors. Exporters are no longer receiving energy at so-called regionally competitive rates, and industrial consumers are now penalized through levies on captive power plant gas usage. In a policy environment where no other sector is receiving energy advantages, why is crypto being singled out for special treatment? Moreover, the government has approved the National Tariff Policy (NTP) 2025–30, which aims to eliminate import tariff protection for domestic industries over the next five years. These sectors will be expected to compete globally without the cushion of cheaper energy or other state support. If the manufacturing base must operate under pure market conditions, what makes crypto so economically magical that it deserves an unfair advantage? Even in agriculture—a traditionally protected sector—the government is undertaking painful reforms. The wheat support price, once a pillar of rural stability, has been withdrawn for two consecutive years. The government is no longer choosing wheat as the staple crop to subsidize. If such a politically sensitive policy can be abandoned, what justifies elevating crypto as a protected sector? Allocating 2,000 MW of electricity to crypto mining defies economic logic. This is not an argument against cryptocurrency mining or blockchain development. Legalizing crypto and forming the Pakistan Crypto Council (PCC) are positive steps. Pakistan should indeed regulate and integrate blockchain technology and digital assets into its financial system. The country should also foster an enabling environment for crypto mining and AI development on a level playing field. However, the current approach lacks transparency. There is a veil of secrecy surrounding the energy allocation. Reports suggest that officials within the Power Division have raised concerns but have been silenced. There's no public clarity on the tariff rates being offered. While some reports claim that crypto and AI proponents requested power at 3 cents/kWh, the government is allegedly considering 5 cents/kWh. Regardless of the figure, it should be publicly disclosed, and similar incentives should be available to other industries to ensure fairness. Choosing any sector as a 'winner' undermines the spirit of the structural reforms the government claims to be pursuing, especially under the guidance of the IMF. If fiscal incentives are indeed being extended to crypto ventures, why is there no objection from the IMF?
