In a significant policy shift, the federal government has decided to impose an 18 percent sales tax on goods manufactured in Pakistan’s erstwhile Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) as part of the upcoming federal budget for fiscal year 2025-26.
Sources privy to the developments have informed Business Recorder that the withdrawal of this long-standing sales tax exemption is projected to generate over Rs45 billion in revenue during the 2025-26 fiscal year. The revenue impact could be even higher if parallel income tax concessions for these regions are also withdrawn, a move currently under consideration. The Federal Board of Revenue (FBR) is reportedly in the process of drafting the necessary legal changes to implement this decision, taking into account relevant court orders and legal provisions.
Previous Exemptions and Recent Amendments
The exemption on sales tax for ex-FATA/PATA, which covered both the import and supply of goods, as well as the supply of electricity, was initially retained until June 30, 2025, through the Finance Act, 2024. This continuity of exemption has allowed businesses in these regions a transitional period.
However, recent amendments had already introduced stricter conditions for the exemption on imports. Previously, this exemption was subject to the presentation of a post-dated cheque. Now, it requires the presentation of a pay order, which will only be released upon furnishing consumption or installation certificates issued by the concerned Commissioner within six months. This earlier change signaled a tightening of controls even before the complete withdrawal of the exemption.
The decision to fully levy sales tax reflects the government’s broader strategy to rationalize tax exemptions and broaden the national tax base. It also aligns with efforts to integrate these previously semi-autonomous regions more fully into the national economic framework. The move is expected to be officially announced as part of the budget proposals for the next fiscal year.
