The federal government is planning a major overhaul of the tax regime by discontinuing several tax exemptions and concessions from July 1, 2026. The move is part of broader efforts to increase revenue collection, broaden the tax base, and bring more sectors and regions under the standard taxation framework.
Tax relief measures scheduled to expire on June 30, 2026, are unlikely to be extended in the upcoming fiscal year. As a result, many individuals, businesses, and industries currently benefiting from reduced tax rates or exemptions may become subject to regular taxation from FY2026-27.
One of the most significant changes is expected in the former tribal districts of Khyber Pakhtunkhwa. The existing income tax exemption for individuals, companies, and associations operating in these areas is likely to end, bringing them into the normal income tax system.
Similarly, exemptions from withholding tax in these regions are also expected to be withdrawn. Beginning July 2026, standard tax deduction and collection mechanisms are likely to apply, further integrating the former tribal districts into Pakistan’s mainstream tax structure.
The government is also expected to continue phasing out sales tax concessions for industries located in the erstwhile FATA and PATA regions. Under the current framework, sales tax on imports and supplies by industrial units in these areas will increase from 10 percent to 12 percent during FY2026-27.
The gradual withdrawal of these incentives follows concerns from businesses in settled areas that tax-free goods intended for tribal regions were being sold elsewhere, creating an uneven competitive environment.
In addition, imports of machinery, equipment, and industrial raw materials for businesses operating in these regions will also be subject to a 12 percent sales tax during the next fiscal year.
The electric vehicle (EV) sector may also see several tax incentives come to an end. Exemptions on the import of completely knocked-down (CKD) kits used for assembling electric vehicles locally are set to expire on June 30, 2026. These incentives currently apply to small electric cars, SUVs with battery capacities of up to 50 kWh, and light commercial vehicles with batteries of up to 150 kWh.
The reduced 1 percent sales tax on locally manufactured or assembled EVs in these categories is also expected to lapse. Furthermore, existing tax concessions for hybrid vehicles, which currently benefit from reduced sales tax rates, may be withdrawn unless renewed by the government.
Another incentive approaching expiry is the exemption from value-added sales tax on EV CKD kits and certain imported fully built electric vehicles. This relief measure is also scheduled to end in June 2026 unless an extension is granted.
Other exemptions likely to be withdrawn include sales tax relief on electricity supplied to residential and commercial consumers in former tribal districts, as well as tax exemptions on locally manufactured silos.
According to officials, the planned withdrawal of these concessions is intended to simplify the tax system, reduce market distortions, and ensure a more uniform taxation structure across sectors and regions.
If implemented, the changes will mean that many businesses and consumers previously benefiting from tax relief will begin paying standard taxes from July 2026. This could lead to higher costs in some sectors, particularly where businesses pass on the additional tax burden to consumers.
