Pakistan is preparing to introduce a major policy change that could reduce the cost of defense procurement by eliminating customs duties on military imports. The proposal, recently endorsed by the Tariff Policy Board (TPB), aims to exempt defense-related imports from the existing 15 percent customs duty beginning July 1, 2026.
The recommendation follows directions issued by Prime Minister Shehbaz Sharif after the Ministry of Defense requested relief from import duties to help manage rising operational expenses and improve the utilization of defense budgets. According to officials, the ministry submitted its proposal in late 2025, highlighting the need for additional financial flexibility to meet national security requirements.
After reviewing the proposal, the prime minister instructed the Finance Division and the Federal Board of Revenue (FBR) to initiate the necessary legal and administrative procedures. Senior officials from the ministries of finance, commerce, and defense, along with the FBR leadership, later met to discuss the practical implementation of the measure.
During these discussions, authorities concluded that introducing the exemption during the current fiscal year would be difficult because of procedural and technical considerations. As a result, it was agreed that the measure would be included in the Finance Act 2026-27 and become effective from the start of the next fiscal year.
The Ministry of Commerce informed the Tariff Policy Board that its approval was required before the proposal could be incorporated into the upcoming finance legislation. Officials also noted that any consultations with the International Monetary Fund (IMF) regarding the revenue implications of the exemption would be handled by the Ministry of Finance.
Following deliberations, the board unanimously supported the proposal and recommended that the exemption be implemented through amendments to the Fifth Schedule of the Customs Act, 1969.
Potential Impact
If approved through the Finance Act, the policy could significantly reduce the overall cost of importing military equipment, spare parts, and other defense-related assets. Lower procurement costs may allow defense institutions to allocate resources more efficiently and potentially expand procurement within existing budgets.
However, the exemption could also reduce customs revenue collected by the government. The extent of this impact will depend on the volume and value of defense imports in the coming years. Policymakers will likely weigh these revenue considerations against the expected benefits for national security and defense preparedness.
Looking Ahead
The recommendation marks an important step in the policymaking process, but the exemption will only become law after its inclusion in the Finance Act 2026-27 and completion of all required approvals. If implemented, the measure will represent a notable shift in Pakistan’s approach to defense procurement and tariff policy, with implications for both fiscal management and national security planning.