ISLAMABAD: Less than two months after the federal budget for 2025-26 came into effect, the government has established a high-level committee to reassess the recent imposition of sales tax on goods supplied and consumed within the erstwhile Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata).
This was disclosed during a briefing to the National Assembly’s Standing Committee on Finance and Revenue, chaired by Naveed Qamar, where Federal Board of Revenue (FBR) Chairman Rashid Langrial acknowledged implementation challenges, citing porous borders that could complicate enforcement if the tax were rolled back.
In the briefing, Langrial proposed that the government could provide subsidies or incentives through the Benazir Income Support Programme (BISP) – the government’s social safety net – to ease the burden on the local population.
FBR to levy 18% sales tax in erstwhile tribal areas
He continued that the government had constituted a committee comprising members from both sides, and recommended that the parliamentary panel allow the committee to come up with a solution.
The committee was briefed on the sales tax imposed in the erstwhile Fata and Pata under the 2025-26 budget and the status of its implementation. Discussions centred on difficulties with tax rates in the newly merged districts of Khyber Pakhtunkhwa and explored alternative approaches to consumption taxation.
Qamar stressed the need for data-driven policymaking, expressing concern over inefficiencies and the lack of concrete evidence linking tax policies to employment generation and development outcomes.
He underscored the importance of focusing on employment and industrial growth, rather than solely on profitability, when considering tax incentives.
Committee members expressed concerns about the impact of sales tax increases on local manufacturing, employment, and the economy in underdeveloped regions.
They also raised policy issues related to local industry and debated the broader implications of the tax on various goods and regional markets.
Citing unfulfilled budgetary promises regarding tax exemptions, members called for improved mechanisms to encourage industrial development in underdeveloped areas. The committee deferred the agenda item for further deliberation in the next meeting.
The committee was informed that, under the Sales Tax Act, 1990, an amendment introduced through the Finance Act, 2025 provides for the phased withdrawal of sales tax exemptions previously available to residents of the former tribal areas. This withdrawal is to be implemented gradually over the coming years, with tax rates increasing in stages to ensure taxpayers are not unduly burdened.
The withdrawal was deemed necessary to promote tax equity across the country and was the result of a carefully considered process undertaken by a committee constituted by the Prime Minister under the chairmanship of Rana Sanaullah. The adviser to the prime minister on inter-provincial coordination.
The panel conducted multiple rounds of consultations with relevant stakeholders. The phased rate structure was finalised with their consensus, keeping in view the larger national interest.
It was also noted that the exemption from sales tax on electricity supplied to the tribal areas has been extended for an additional year. This measure is intended to provide continued relief and mitigate the impact of the broader withdrawal of exemptions on residents.
Moreover, businesses in the erstwhile Fata/Pata can sell goods in the rest of Pakistan at a sales tax rate of 16%, compared to 18 percent charged by other businesses, giving them a 2 percent price advantage. With reference to a previous Public Accounts Committee (PAC) meeting, it was submitted that the Finance Act, 2025 withdrew the sales tax exemption simultaneously on imports and supplies, providing identical tax treatment to prevent profit margins from being eroded due to internal price distortions.
The proposal to withdraw exemptions on both imports and local supplies was part of a presentation before the Prime Minister’s committee chaired by Rana Sanaullah.
Copyright Business Recorder, 2025
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