Federal government is preparing to end tax exemptions for the former tribal areas in the upcoming fiscal year budget following demands by the International Monetary Fund (IMF) to further reduce tax concessions and exemptions.
According to sources, the government has decided not to extend various tax relief measures currently available to the former Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA). As a result, income tax and withholding tax exemptions for these regions may come to an end after June 30, 2026.
Sources said the issue was discussed during ongoing negotiations between Pakistan and the IMF regarding the next fiscal year’s budget. The IMF has reportedly asked Pakistan to further curtail tax exemptions and concessions as part of broader revenue-enhancement measures.
According to sources, reducing tax exemptions and concessions in the upcoming budget is expected to generate nearly Rs40 billion in additional revenue. The federal government has prepared a plan to abolish several tax exemptions after June 30, 2026, in an effort to increase tax collection.
Sources further stated that the income tax exemption for former FATA and PATA regions will expire on June 30, 2026. From July 1, 2026, residents and companies operating in these areas are likely to come under the normal tax regime applicable across the country.
There is also a possibility of a phased increase in sales tax in the tribal areas. In this regard, a proposal is under consideration to raise sales tax on industries in former FATA and PATA from 10 percent to 12 percent. In addition, imported industrial raw materials for these areas may also face a 12 percent sales tax.
According to sources, withholding tax exemptions for FATA and PATA are also likely to end from July 1, 2026.
Sources added that the sales tax exemption on CKD kits for electric vehicles may also be withdrawn from July 1, 2026. Meanwhile, the existing one percent sales tax on locally manufactured or assembled electric vehicles will remain in place until June 30, 2026. Similarly, the concessional sales tax regime for hybrid electric vehicles is also set to expire on June 30, 2026, with no further extension currently expected.
According to sources, the sales tax exemption on electricity supply to tribal areas will remain effective until June 30, 2026. The sales tax exemption on locally manufactured silos is also expected to expire on the same date.
Sources further said that the Climate Support Levy on petroleum products may be doubled from July 1. Under the proposal, the levy could increase from Rs2.5 per litre to Rs5 per litre. More than Rs90 billion is expected to be collected under the Climate Support Levy during the next fiscal year.
