The federal government is set to impose an 18 percent sales tax on goods manufactured in the erstwhile tribal areas, as part of the upcoming 2025-26 budget. This move marks a significant policy shift, ending longstanding tax exemptions and potentially generating over Rs45 billion in additional revenue for the next fiscal year.

The Federal Board of Revenue (FBR) is currently drafting the necessary legal amendments, guided by recent court orders and relevant statutory provisions. The revenue impact could climb even higher if income tax concessions for these regions are also rolled back.

Previously, the Finance Act, 2024 had extended sales tax exemptions for ex-FATA and PATA, covering the import and supply of goods as well as electricity, until June 30, 2025. However, the government now appears poised to let these exemptions expire, bringing the tax regime in these areas in line with the rest of the country.

In a related tweak, the exemption on imports will now require importers to present a pay order instead of a post-dated cheque. The pay order will only be released upon submission, within six months of consumption or installation certificates issued by the relevant Commissioner.