The Ministry of Commerce in Pakistan unveiled the National Tariff Policy 2019-24 (NTP 2019- 24) in November 2019. The core aims of the policy were to: i) remove tariff-related anomalies in the short-term to lower businesses’ cost of inputs and increase their turnover, ii) increase employment generation in the medium-term, and iii) gain competitiveness and exports in the long-term. After its announcement, there remains a need to analyze the effectiveness and impact of the policy. SDPI team conducted primary research to assess the impact of tariff policy on Small and Medium Enterprises (SMEs) with the help of a firm-level survey. This specific survey aims to bridge the evidence gap by providing an in-depth analysis on the NTP-2019-24 impact in terms of its three prime objectives. Besides, the study also attempts to understand the business community’s challenges and expectations vis-à-vis tariff-related matters.

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First edition: March 2023
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Table of Contents
1. Background and Rationale 4
2. Methodology 4
3. Findings 4
4. Conclusion 6
5. Recommendations 8

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1. Background and Rationale
The Ministry of Commerce unveiled the National Tariff Policy 2019-24 (NTP 2019-
24) in November 2019. The core aims of the policy were to: i) remove tariff-related
anomalies in the short-term to lower businesses’ cost of inputs and increase their
turnover, ii) increase employment generation in the medium-term, and iii) gain
competitiveness and exports in the long-term.
After its announcement, there remains a need to analyze the effectiveness and
impact of the policy. SDPI team conducted primary research to assess the impact
of tariff policy on Small and Medium Enterprises (SMEs) with the help of a firm-
level survey. The survey was conducted during the period between May 2022 to July
2022.
This specific survey aims to bridge the evidence gap by providing an in-depth
analysis on the NTP-2019-24 impact in terms of its three prime objectives. Besides,
the study also attempts to understand the business community’s challenges and
expectations vis-à-vis tariff-related matters.
2. Methodology
To explore effectiveness and impact of tariff rationalization on SMEs, we conducted
a survey of 300 firms. The sample covered 10 different industries such as textiles
and garments, auto parts, agro and food processing, leather, surgical instruments,
engineering goods, sport goods, iron and steel, chemicals, and plastics.
A structured questionnaire was administered in Khyber Pakhtunkhwa, Punjab and
Sindh provinces. A conscious effort was made to get responses from current and
potential trading firms and firms owned and managed by women.
3. Findings
Our results indicated that around 55 per cent respondents owing different
businesses were aware of the NTP. For those unaware, a larger number of firms
have previously interacted with National Tariff Commission (NTC). These firms do
acknowledge that access to Tariff Board has increased after the announcement of
the policy. Awareness was relatively high among non-exporters, large enterprises
and SMEs, and respondents in the above-mentioned industries. The respondents,
who were aware of the NTP, were also more likely to note that NTP is beneficial
for their business and overall policy certainty in agriculture and manufacturing
sectors.

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Survey results suggest that most of the businesses in all industries (except for
auto parts, surgical instruments, and iron steel industries) noted that the NTP
had achieved its short-term objective of removal of tariff anomalies. Leading
exporting sectors such as textiles and garments, leather and sport goods are
associated with NTP benefits such as reduced cost of input, predictable tariffs,
higher revenues, and increase in exports after the announcement of this policy.
The survey asked respondents about the extent of post-NTP changes in Customs
Duty (CD) and Regulatory Duty (RD). Over 50% of respondents claimed that CD on
their main input did not change at all. These respondents were running businesses
such as iron and steel, surgical instruments, and auto parts. Businesses in leather,
sports goods, and textiles garments experienced a low change in CD rate (i.e.
up to 5 per cent); whereas industries such as engineering goods, chemicals and
plastics witnessed a higher change in CD rate (i.e. over 5 per cent) on their core
input.
A large majority of industries (except leather and engineering goods) mentioned
no change in regulatory duty on their main input post-tariff policy. Though
leather-based businesses reported change below 5%. A significant proportion of
engineering goods-based industries experienced an RD change on the high side
(6% and above). Textiles and garments, auto parts, and iron steel businesses
were more likely to have seen a smaller RD increase (1-5%), whereas agro and food
processing, chemicals and plastics were more likely to have experienced a higher
RD increase (6% and above).
Two-thirds of the respondents mentioned reduction in tariffs as being significant
in their cost structure. These medium-sized firms desire a further reduction in
tariff rates and that too for a period up to five years. The smaller firms didn’t want
to see frequent changes in tariff slabs for their inputs.
Firms also reported that the focus of tariff policy is more skewed towards
raw materials whereas subcomponents that are an intermediate input of the
production process face higher tariffs. Policy coherence is also desired. For
example, the auto manufacturers faced 15 to 20 per cent customs duty. However,
one has to be mindful that these duties maybe an outcome of the auto policy and
not the tariff policy. Auto sector also suggests that tariffs have been fluctuating
over the years thus not allowing firms to engage in future planning. For instance,
the tariff on Chlorofluorocarbon (CFC) compressors for air conditioners for
automobiles in 2001 was 20 per cent, however reduced to 05 per cent in 2002
with the inclusion of Hydrochlorofluorocarbon (HCFC) and CFC. Till 2016, tariff on
CFC based compressors was 10 per cent. In 2016-17 it was changed to 03 per cent.
In 2017-18, auto sector was all together excluded from official tariff measures.

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Confusion over HS codes was also mentioned by leather garments sector and that
only specific grades get benefit due to this confusion.
The textile industry highlighted multiple layers in tariffs, which created
misunderstandings between public and private sector. For example, machinery
faced a minimum customs duty of 05 per cent and maximum above 30 per cent,
Yarn 11-13 per cent and polyester 04 per cent; dyes 02 per cent auxiliary items
(digital ink: 20 per cent, softener 11-13 per cent) (reactive dyes about 20-30 per
cent) and digital printer ink has the highest duty of 35 per cent. These number of
layered tariffs suggest a high duty for subcomponents ultimately increasing the
cost of doing business and scaleup.
With regards to food and agro industry, respondents shared that tariff policy
should respond to changes in global economic environment. This sector’s access
to global markets had reduced due to pandemic and tariff policy could help.
For instance, rice exporters mention that due to COVID-19, trade protocols have
tightened due to health, safety, and hygiene concerns. For rice exports, it was
essential now to use fumigated bags to allow air to pass through them. Rates on
such inputs including packaging materials should come down.
4. Conclusion
Half of the industry remains oblivious to the fact that the tariff policy exists
and businesses are hence unable to get benefits of it. During our survey, SMEs
mentioned that in case of public hearings on specific commodities by the NTC,
the discussions during such hearings are not conclusive. Decisions should be
followed by public dissemination meetings. The SMEs cite that behind the scenes,
the Tariff Board is more receptive to ideas and recommendations coming from
larger businesses and influential quarters. Survey findings highlight that tariff
rates have a large potential to bring down the cost of doing business. Medium-
term consistency in tariff rates could encourage forward and long-term investment
planning. This is more desired by smaller businesses aiming to become exporters.
In addition to NTP, other sector specific policies also influence business costs.
It is important that positive impacts of tariff policy should not be nullified by
sector-specific policies or tax measures by the Federal Bureau of Revenue (FBR)
or regulators, e.g. the central bank. This implies particularly to auto parts, surgical
instruments, and iron steel industries. Qualitative discussions highlighted that
smaller businesses remain outside the policy design and formulation process and
suggest that they can provide useful information if contacted. This process could,
in turn, help put in place a more inclusive tariff policy. Start-up firms opine that
climate, environmental and health-safety considerations should be factored in
tariff policy.

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Recommendations Institution(s) concerned Timeframe
NTC may institutionalize and increase its
interaction with the business community in
order to improve awareness of the tariff reforms
and seek feedback. A structured calendar of
public-private dialogue by the sector should be
announced every year.
National Tariff Commission Continuous
process
An adaptive design of future tariff policies is
desired. The COVID-19 crisis, commodity super
cycle, supply chain disruptions, reduced foreign
exchange availability for SMEs, 2022 floods, and
general rise in cost of inputs globally require
greater agility in tariff policy. This requires
reduction in tariff duties and slabs to increase
competitiveness. For this, SDPI and the World
Bank may host joint workshops for NTC, Ministry
of Commerce, and FBR on adaptive policy design.
National Tariff Commission
Development partners, SDPI
Medium-term
Conduct some in-depth industry-based studies to
explore as to how the recent tariff changes in peer
countries have influenced SMEs competitiveness.
National Tariff Commission
Development partners, SDPI
Short-term
Conduct public-private dialogues on tariff reforms
with small chambers of commerce and industry
so that SMEs are reasonably aware and able to
associate improvements in tariff structure with
on-ground sector circumstances. Such dialogues,
if backed by evidence, will also inform business
associations regarding negative outcomes
associated with import substitution measures.
National Tariff Commission
Think-tanks (e.g. SDPI,
PIDE)
Chambers of Commerce
and Industry
Business Associations
Medium-term
Tariff policy’s success critically depends on the
complementary measures by SBP and FBR. A
dialogue with both institutions is required to
notify coordinated actions for future. A working
group may be notified that regularly meets to
discuss this subject. Terms of Reference for this
working group may also be notified.
National Tariff Commission
State Bank of Pakistan
Federal Board of Revenue
Short-term
NTC may also initiate data sharing agreements
with key associations/bodies such as PBC, FPCCI,
and OICCI so that impact of tariff changes might
be analyzed more frequently.
National Tariff Commission,
Business Associations
Short-term
NTC will also benefit from annual review of
comparative tariff policy/measures across peer
economies. This can be done with analytical
support from think tanks.
National Tariff Commission,
National think tanks
Short-term
5. Recommendations
Some key recommendations are as follows: