Pakistan plans to cut tax exemptions and concessions in the FY2026-27 federal budget to raise around Rs40 billion in additional revenue, sources said.
The move comes as Pakistan and the International Monetary Fund continue budget negotiations. Sources said the IMF has asked the federal government to reduce relief measures to improve revenue collection.
The federal government has decided not to extend several tax exemptions beyond June 30, 2026, according to sources.
The income tax exemption for the former Federally Administered Tribal Areas and Provincially Administered Tribal Areas is expected to expire on June 30, 2026. Individuals and companies in those areas may enter the standard tax regime from July 1, 2026.
The government is also considering a gradual increase in sales tax in the former tribal regions. Sales tax on industries in FATA and PATA may rise from 10% to 12%.
Imported industrial raw materials in those areas may also be subject to a 12% sales tax. Sources said withholding tax exemptions for FATA and PATA are likely to end on July 1, 2026.
Read: Pakistan IMF Budget Talks Set Rs18tr FY2026-27 Plan
Tax relief for the electric vehicle sector may also be withdrawn. The sales tax exemption on CKD kits for electric vehicles is expected to expire on July 1, 2026.
The reduced 1% sales tax on locally manufactured or assembled electric vehicles will remain only until June 30, 2026. The concessional sales tax regime for hybrid electric vehicles is also set to expire at the end of the current fiscal year.
The government is likely to double the Climate Support Levy on petroleum products from Rs2.5 per litre to Rs5 per litre from July 1, 2026.
Officials estimate the Climate Support Levy could generate more than Rs90 billion in revenue during the next fiscal year.
