Pakistan finds itself once again walking a fiscal tightrope between ambitious policy reforms and grounded budgetary behaviour. The recent unveiling of the National Tariff Policy 2025-30 and the national electric vehicle framework suggests a serious pivot toward industrial modernization, climate-conscious development, and export-led growth. These policies offer a well-crafted blueprint to attract foreign investment, boost domestic productivity, and integrate Pakistan into global supply chains.
The National Tariff Policy, launched on June 18, 2025, aims to transition Pakistan toward a simplified four-slab tariff regime of zero, five, ten, and fifteen per cent across approximately 7,000 tariff lines. It proposes the phased elimination of additional customs duties and regulatory duties over five years. This rationalization is expected to reduce the cost of doing business, particularly in sectors like engineering, IT, pharmaceuticals, and value-added textiles,
In contrast to this federal push toward liberalization and competitiveness, provincial budgets have largely remained static in structure and intent. Punjab’s 2025-26 budget, totalling over PKR 5.4 trillion, allocates less than PKR 28 billion directly toward industry, technology, or innovation-just over 0.5 per cent of the total. In contrast, PKR 320 billion is earmarked for roads, conventional infrastructure, and general services.
The credibility of Pakistan’s economic reform agenda depends on one imple test whether the provinces are moving in the same direction as Islamabad.
Khyber Pakhtunkhwa, grappling with a budget deficit and limited fiscal space, has allocated less than PKR 6 billion to industrial development from its PKR 1.9 trillion outlay. It remains dependent on federal grants and internal revenues from sales and excise taxes, which continue to emphasize levies on fuel-intensive industries. Balochistan, despite being rich in lithium and other critical minerals needed for battery manufacturing, has not launched any exploration or public-private partnership for sustainable exploration.
This disconnect is further amplified when juxtaposed with the federal EV policy. Launched to position Pakistan in line with the global USD 1.5 trillion EV market, the policy targets 30 per cent EV penetration in passenger vehicles and 50 percent in two- and three-wheelers by 2030. It slashes import duties on lithium-ion batteries, offers tax breaks on EV assemblies, and proposes special zones for EV innovation. Yet, the provincial support to operationalize this vision is negligible.
The institutional disconnect further complicates matters. Investors interested in EV supply chains or green energy corridors must navigate overlapping regulations between provincial Boards of Investment, industrial development authorities, and federal ministries. Electricity pricing for EV manufacturers remains inconsistent, with industrial tariffs exceeding PKR 45 per kWh in certain provinces, while others offer subsidies without clarity or duration.
A recent comparative review of how similar economies manage national-provincial reform alignment sheds light on what Pakistan is missing. In Morocco, a country with high decentralization, the national green energy strategy was mapped directly into each regional government’s budget with performance-based grants. In Indonesia, tariff simplification was implemented with direct fiscal incentives for provinces that met export and tax compliance milestones.
In Pakistan’s case, such conditional alignment is missing. Development funds continue to be disbursed through traditional formulas, with limited policy-linked conditions. There is no reward for reforming, nor penalty for resisting. As a result, provincial governments are under no fiscal or political pressure to realign their development priorities with national ambitions. This renders even the best-designed federal policies toothless in execution.
The auto sector, one of Pakistan’s largest industrial employers, has expressed both optimism and caution. Industry associations including PAMA and the LCCI have welcomed tariff rationalization and EV incentives but repeatedly raised concerns about inconsistent local regulations, provincial registration delays, and power supply bottlenecks. As per estimates from the Engineering Development Board, Pakistan could reduce vehicle production costs by 12 to 18 per cent under the new tariff and EV policies.
One of the biggest challenges facing the success of the National Tariff Policy is the lack of a clearly defined roadmap to offset expected revenue losses. With over PKR 200 billion in annual duties being phased out, the onus falls squarely on expanding direct taxation. However, Pakistan’s tax-to-GDP ratio of just 9.6 per cent limits this buffer. Provinces, already dependent on narrow revenue streams such as GST on services and property registration fees, lack the institutional muscle to plug this gap.
Beyond fiscal constraints, there exists a significant capacity deficit at the provincial level. Most provincial departments lack trained human capital to design, implement, and monitor industry-specific policies that align with national objectives. Institutional silos persist between industries, energy, transport, and finance departments, leading to fragmented project execution. Public sector development plans often remain underutilized due to bureaucratic delays, poor procurement, and lack of private sector investment.
Pakistan’s export base remains dangerously narrow, with over 60 per cent concentrated in textiles. Provinces like Punjab and Sindh have untapped potential in light engineering, auto parts manufacturing, agro-processing, and IT services-all of which could flourish under a liberalized tariff regime and targeted infrastructure investment. However, due to the lack of sector-specific budget lines and export-facilitation zones at the provincial level, this opportunity is being squandered.
Policymakers must also take into account the larger macroeconomic implications of budget-policy misalignment. Pakistan’s trade deficit for FY24 stood at USD 24.9 billion, largely due to reliance on high-cost fuel and industrial inputs. Replacing these with domestically produced EV components or green energy inputs could have saved nearly USD 3.5 billion. However, that assumes vertical coordination, robust execution, and intergovernmental commitment-all currently in short supply.
The solution lies in creating a federal-provincial accountability and incentive mechanism. A revitalized National Finance Commission could allocate a percentage of transfers based on provincial performance in implementing national industrial, climate, and trade policies. Public Sector Development Programs should embed “policy compliance triggers” to access federal matching grants.
At the same time, federal ministries must engage provinces not merely as implementers but as co-architects. Policy dialogues must shift from monologues to partnerships. Provincial development plans must be rewritten to include tariff reform absorption strategies, EV deployment roadmaps, and export facilitation mechanisms. The Planning Commission must restructure its long-term frameworks to provide tailored blueprints for each province, recognizing their different economic, geographical, and fiscal contexts.
The credibility of Pakistan’s economic reform agenda depends on one simple test whether the provinces are moving in the same direction as Islamabad. So far, the answer is unclear. Wheels may symbolize ambition, walls may represent resistance, and wallets determine the pace of change. But until all three are turned in the same direction-policy, provincial budgeting, and institutional collaboration-Pakistan will remain trapped in a cycle of reform without results.
If Pakistan is to escape the gravitational pull of outdated economic governance and inertia-based fiscal planning, it must federate its reforms. The future cannot be announced only in federal press rooms-it must be financed, executed, and owned across provincial corridors. Only then can Pakistan genuinely drive toward a sustainable, competitive, and inclusive economic future.
The writer is a financial expert and can be reached at jawadsaleem.1982@ gmail.com. He tweets @JawadSaleem1982