The federal government on Wednesday officially ended a decades-old tax holiday for merged tribal districts of Khyber Pakhtunkhwa and the Malakand Division, bringing the erstwhile autonomous regions into the formal tax net for the first time since the country’s independence. Under the federal budget for the fiscal year 2026-27, which took effect on July 1, industrial units operating in these northwestern territories will now be subject to a 12 per cent sales tax on industrial production and a 7 per cent income tax.
Earlier on Sunday, the Khyber Pakhtunkhwa Assembly unanimously passed a resolution to demand the federal government to immediately withdraw its decision about imposition of taxes in Malakand Division, known as Provincially Administered Tribal Areas (PATA), and erstwhile Federally Administered Tribal Areas (FATA).
Historically, FATA and the PATA enjoyed constitutional exemptions from federal taxes to compensate for severe economic backwardness, poverty, and infrastructural deficits.
When the FATA was constitutionally merged into the Khyber Pakhtunkhwa province in 2018, the government extended a temporary tax waiver to shield local businesses.
The expiry of this waiver has triggered anxiety among local industrial sectors, who said the move could permanently cripple an industrial base already reeling from deteriorating security conditions and logistics hurdles.