IMF Tariff Cuts: Car Prices May Come Down in Pakistan
Pakistan’s car market has been grappling with record-high prices that have significantly affected consumer purchasing power. However, the recent agreement between the government of Pakistan and the International Monetary Fund (IMF) to reduce import tariffs could provide much-needed relief to the local automobile industry and bring car prices down over time.
This move is set to impact both local auto makers, car prices, consumers, and while it may come at an estimated cost, the long-term benefits could make a significant difference.
The IMF has demanded a reduction in trade barriers, specifically focusing on cutting effective average import tariffs by one-third over the next five years. This is part of an effort to foster greater foreign competition, which the IMF believes will create a more competitive environment in the market.
As part of this new tariff policy, the average tariff will decrease from the current levels to just 7.1%, a shift that could particularly help the automobile sector in Pakistan.
High Car Prices & Rising Car Market
The auto industry in Pakistan has been facing steep hikes in car price due to multiple factors, such as high regulatory duties and the government’s protectionist approach. While foreign competition is limited, local car manufacturers have been able to set prices at higher levels. In fact, the country has seen car prices soar to record highs, making it difficult for middle-class buyers to afford new vehicles.
Pakistan’s auto sector has been heavily impacted by Free Trade Agreements (FTAs), particularly with China. The government used these FTAs to limit imports through high regulatory duties, which have exacerbated the price issues.
The new IMF policy aims to reverse this trend, with the car sector set to benefit from significant tariff reductions. By lowering tariffs, the government hopes to liberalize the sector, allowing more competition and, in turn, creating downward pressure on car prices.
The government has agreed to a number of key steps to implement the tariff reduction. It will eliminate additional customs duties, cut regulatory duties by 75%, and withdraw certain concessions under the fifth schedule of the Customs Act. This initiative will begin in July 2025 and will be implemented under a new National Tariff Policy, which will remain in effect until at least 2030.
The auto sector will see the most significant tariff reductions. By 2030, the weighted average tariff for automobiles will be reduced to just 5.6%. This reduction will not only benefit local manufacturers but will also encourage competition from foreign companies, which could lead to more affordable car options for Pakistani consumers. The government also plans to rationalize customs duty slabs and remove all additional and regulatory duties on automobiles.
The IMF has sought assurances that these tariff reductions will continue beyond the expiration of the current programme in 2027. In response, the Pakistani government has committed to keeping these reduced tariffs unchanged for at least three years, focusing on export-led growth and driving the development of green and technology-intensive industries.