Islamabad – The federal government is reconsidering its decision to impose a 10% sales tax in Khyber Pakhtunkhwa’s merged districts after mounting criticism from trade bodies and lawmakers.
Federal Board of Revenue (FBR) Chairman Rashid Langrial told the National Assembly’s Finance Committee on Tuesday that Prime Minister Shehbaz Sharif has set up a high-level committee to review the controversial tax. The group will be led by Rana Sanaullah Khan, the PM’s adviser on political affairs.
Tax Meant to Level the Playing Field
Until this fiscal year, businesses operating in the former tribal areas—merged with KP in 2018—enjoyed a blanket sales tax exemption. According to Langrial, this gave them an 18% cost advantage over competitors in other provinces, leading to strong lobbying from industries outside the region.
To address the imbalance, the government introduced a 10% sales tax in the merged districts. However, the backlash was swift, with local traders arguing that the abrupt shift would harm an already fragile economy still recovering from years of militancy and underinvestment.
IMF Oversight Looms Over Tax Policy
The decision to revisit the levy also comes as Pakistan navigates tight fiscal reforms under an International Monetary Fund (IMF) program. Rolling back or altering tax measures could raise concerns with the lender, which has long pushed Islamabad to broaden its tax base.
Subsidy Proposal Shot Down
During the committee session, FBR officials floated the idea of offering tax differential subsidies to shield local residents from the immediate effects of the new tax. Lawmakers, however, rejected the proposal, signaling that the government is leaning toward a more comprehensive review rather than temporary fixes.
The Finance Committee took up the matter following a referral from the Public Accounts Committee, which had been approached by regional trade associations. The newly formed committee is expected to deliver its recommendations in the coming weeks.
