The federal government is set to withdraw a broad range of tax exemptions from July 1, 2026, as part of efforts to increase revenue, widen the tax base, and phase out preferential treatment for selected sectors and regions.
Sources said tax relief measures due to expire on June 30, 2026, are unlikely to be extended in the next fiscal year, meaning individuals, businesses, and industries currently benefiting from lower taxes or exemptions will begin paying taxes under the normal regime from the start of FY2026-27.
Among the key changes, income tax exemptions available to individuals, companies, and associations of persons in the former tribal areas of Khyber Pakhtunkhwa are expected to come to an end after June 30, 2026. Once withdrawn, those areas will be brought under the regular income tax framework.
The withholding tax exemption applicable in the former tribal districts is also likely to lapse, with normal tax deduction and collection provisions expected to take effect from July 2026.
The government is also expected to continue the phased withdrawal of sales tax concessions for industries operating in the erstwhile FATA and PATA regions. Under the existing structure, sales tax on imports and supplies by industrial units in these areas will rise from 10 percent to 12 percent during the period from July 2026 to June 2027.
Officials said the gradual increase was introduced after concerns were raised by industries in settled areas that tax-free goods meant for tribal regions were being diverted to other markets, creating an uneven business environment.
Similarly, imports of plant, machinery, and equipment for installation in tribal areas, along with industrial raw materials used by businesses there, will also be subject to 12 percent sales tax in FY2026-27.
The electric vehicle sector is another major area where tax incentives are expected to expire. These include sales tax exemptions on the import of completely knocked down kits for the local assembly of electric vehicles, including small cars and 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 currently applicable to locally manufactured or assembled electric vehicles in these categories is also set to end on June 30, 2026. Tax concessions for hybrid electric vehicles, where sales tax rates currently range between 8.5 percent and 12.75 percent, may also expire unless renewed by the government.
In addition, the exemption from value-added sales tax on EV CKD kits and certain imported completely built electric vehicles will remain available only until the end of June 2026 if no extension is granted.
Other concessions nearing expiry include sales tax exemption on electricity supplied to residential and commercial consumers in the former tribal areas, as well as the exemption on supplies of locally manufactured silos.
Officials said the planned withdrawal of exemptions is part of a wider strategy to streamline the tax system, remove distortions in the market, and bring previously exempt sectors and regions into the mainstream tax structure.
