Govt plans to end tax holiday in ex-Fata

ISLAMABAD: In a major policy shift, the government is mulling to withdraw the sales tax exemption for goods manufactured in the former tribal areas, aiming to raise over Rs45 billion in revenue during the next fiscal year, official sources told The News.

The 18 percent sales tax —set to be imposed through the 2025-26 federal budget — will also apply to electricity supplied to the ex-Fata and Pata regions. The move marks the end of a years-long tax holiday granted after the merger of the tribal areas into Khyber Pakhtunkhwa.

The FBR is also weighing a proposal to introduce a withholding tax on imports into the region — another measure that would mark a sharp departure from post-merger fiscal leniency.

Officials say the revenue gains could rise further if income tax concessions are also rescinded. The Federal Board of Revenue (FBR) is currently finalising the necessary legal amendments to compliance with court rulings and existing tax statutes.

Last year’s Finance Act had extended exemptions on the import and supply of goods and electricity for the former tribal areas until June 30, 2025. However, under revised rules, importers must now submit a pay order — rather than a post-dated cheque — to avail the exemption, which will only be granted upon production of verified consumption or installation certificates from the relevant Commissioner within six months.

The government’s decision reflects growing fiscal pressures and a push to broaden the tax base amid commitments to international lenders, especially IMF. However, the move is likely to spark criticism from stakeholders in the tribal belt, where development remains slow and economic recovery fragile.

Analysts warn that sudden withdrawal of tax incentives without a parallel uplift package could deepen local discontent and stall industrial activity in these already struggling regions.