KARACHI: Pakistan’s chemical and plastic manufacturing sector has sounded the alarm over proposed tariff reductions in the federal budget for FY2025-26, warning that the move could trigger the collapse of an industry vital to the country’s industrial backbone.
Industry stakeholders argue that eliminating import duties on chemicals and plastics, amid ongoing economic recovery, would exacerbate structural challenges, threaten over 300,000 jobs, and reverse gains in import substitution, tax revenue, and export growth.
They said that the government’s proposed tariff reductions, at this economic recovery space, specifically the removal of import duties on imported chemicals and plastics, have stirred intense concern among industrial players.
According to industry stakeholders, such changes could trigger an irreversible decline in a sector that forms the backbone of Pakistan’s industrial value chain. The chemical industry contributes 3-4 percent of GDP while supporting over 300,000 direct and indirect jobs. Annually, it enables import savings of over $7 billion, exports of $1.2 billion and pays more than Rs. 700 billion in taxes and duties.
However, the sector is on the verge of collapse due to structural disadvantages, including high energy tariffs, high raw material costs, elevated capital costs, and heavy taxation.
Gas energy prices in Pakistan have increased nearly fourfold in the last three years for most captive based chemical players, making them uncompetitive versus their peers in other countries.
Unlike regional peers, Pakistan lacks a Naphtha or Ethane cracker, a foundational component for producing the raw materials used in chemical and plastic manufacturing. Conse-quently, Pakistani producers must rely on distant and expensive imports, bearing high freight and storage costs that further widen the cost gap.
Adding to this challenge is a corporate tax burden of approximately 37%, far higher than the 20-25% averages in countries like Vietnam, Bangladesh, and India. The cost of capital, even after recent interest rate cuts, remains prohibitively high due to Pakistan’s sovereign country risk premium.
Additionally, the absence of industrial infrastructure forces manufacturers to self-finance and develop ancillary infrastructure such as water treatment, effluent management, and backup energy solutions – raising capital expenditure by an estimated 25 percent over regional norms.
Despite these challenges, listed companies in the industry have collectively invested Rs. 100 billion in the last 3 years to expand capacity and improve operational efficiency.
Industry stakeholders said that reducing import tariffs at this critical juncture could dismantle Pakistan’s fragile industrial ecosystem. The case for tariff reduction is a hypothesis that reduced tariffs will start Pakistan’s journey towards export-led growth, they added.
Domestic manufacturers have called on the government to maintain the current tariff regime for FY2025-26 and initiate a broader, multi-stakeholder consultation before making long-term changes. It is also important to note that anything imported for exports is duty-free under the “Export Facilitation Scheme,” which means tariffs don’t affect exports, they mentioned.
With manufacturers navigating structural challenges and contributing meaningfully to employment, tax revenue, and import substitution, policy decisions should aim to support stability while keeping competitiveness in view, they concluded.
Copyright Business Recorder, 2025
