Key Takeaways
- Pakistan's National Tariff Policy 2025-30 aims to reduce tariffs but faces resistance from manufacturers.
- Critics argue that high production costs and lack of strategic trade agreements are the main barriers to exports.
- The government plans to cut tariffs by 2030 but faces skepticism over the policy's effectiveness.
Pakistan's manufacturing sector is facing significant challenges under the new National Tariff Policy 2025-30, which aims to liberalise tariffs. The policy, influenced by the World Bank's 2022 Country Economic Memorandum, seeks to reduce tariffs to boost exports. However, local manufacturers are expressing concerns over the feasibility of the plan.
According to the World Bank report, Pakistan ranks second-highest for tariff cascading, after Egypt, which the report claims contributes to a focus on high-margin domestic markets over low-margin exports. The report suggests that a 10 per cent import tariff on a $100 bike would push its price to $110 in the domestic market, leading local manufacturers to raise their prices and focus on the domestic market.
However, this argument is seen as overly simplistic by many in the manufacturing sector. They point out that the cost of producing a bike in Pakistan is more than $100 due to higher utility, finance, and tax costs. Additionally, intense competition among domestic firms keeps prices reasonable, preventing profiteering.
Furthermore, manufacturers argue that the primary reason for low exports is the lack of easy access for foreign buyers. Concerns about terrorism, special transport arrangements, and high travel insurance premiums make it difficult for foreign buyers to visit the country. Geopolitical and security constraints, along with a lack of strategic Free Trade Agreements with high-potential markets, are also cited as significant barriers.
By 2030, Pakistan aims to cut its simple average tariff to 9.7 per cent, its weighted average tariff to under 6 per cent, and cap peak tariffs at 15 per cent. The government believes that lower tariffs will dismantle anti-export bias and force domestic companies to compete globally. However, critics argue that the baseline cost of doing business in Pakistan is too high, making it difficult for manufacturers to compete, regardless of tariff levels.
The government also plans to offer support through rebates and Drawback of Local Taxes and Levies (DLTL) incentives, but these measures are seen as insufficient by many manufacturers. They argue that the lack of strategic trade agreements and the high cost of doing business are the primary obstacles to exports.
In conclusion, while the government aims to liberalise tariffs to boost exports, the manufacturing sector remains skeptical. The focus should be on addressing the underlying issues, such as high production costs and the lack of strategic trade agreements, rather than solely relying on tariff reductions.
The manufacturing sector is calling for a more holistic approach to boost exports, including better trade agreements, support from the government, and addressing the high cost of doing business in Pakistan.
