Govt Plans 18% Sales Tax on Ex-Tribal Area Goods

ISLAMABAD: The federal government is preparing to introduce a significant fiscal change by imposing an 18% sales tax on goods produced in the former tribal areas (ex-FATA/PATA) as part of the upcoming federal budget for the fiscal year 2025-26.

This move marks a major shift in the government’s taxation policy for the region, which has benefited from tax exemptions since its merger with Khyber Pakhtunkhwa province.

According to official sources, withdrawing the sales tax exemption is expected to generate over Rs45 billion in revenue during the next fiscal year. The total revenue impact could climb even higher if the government proceeds with removing income tax concessions that currently apply to the region.

FBR Working on Legal Amendments

The Federal Board of Revenue (FBR) is actively reviewing the legal framework in light of recent court rulings and statutory requirements. Officials have confirmed that the necessary legal amendments are in progress to ensure compliance and proper implementation of the new taxation policy.

Under the Finance Act of 2024, the ex-FATA/PATA regions were granted an extension in sales tax exemptions on goods and electricity imports and supplies. This exemption is valid until June 30, 2025.

However, changes are underway. Notably, the mechanism for claiming exemptions on imports is being tightened. Instead of submitting a post-dated cheque, businesses will now be required to provide a pay order. This pay order will only be released after submission of consumption or installation certificates to the concerned commissioner within a six-month period.

The upcoming changes signal a gradual phase-out of the special tax regime for the former tribal districts, aligning them more closely with national tax policies. It reflects the government’s intent to standardize tax treatment across all regions and expand the tax base while complying with legal obligations.