The federal government is preparing to end a wide range of tax exemptions from July 1, 2026, in a major move aimed at increasing revenue, expanding the tax net, and reducing special treatment for selected sectors and regions.

Under the plan, tax relief measures set to expire on June 30, 2026, are not expected to be extended in the next fiscal year. This means many individuals, businesses, and industries that currently enjoy lower taxes or exemptions will start paying taxes under the normal system from the beginning of FY2026-27.

One of the biggest changes will affect people and businesses in the former tribal areas of Khyber Pakhtunkhwa. The income tax exemption currently available to individuals, companies, and associations of persons in these areas is expected to end after June 30, 2026. Once the exemption expires, they will come under the regular income tax regime.

The exemption from withholding tax in these areas is also likely to end. From July 2026, normal tax deductions and collections are expected to apply, bringing the former tribal districts further into the mainstream taxation system.

The government is also expected to continue the gradual withdrawal of sales tax concessions for industries operating in the erstwhile FATA and PATA regions. Under the current structure, sales tax on imports and supplies by industrial units in these areas will rise from 10 percent to 12 percent from July 2026 to June 2027.

This phased increase was introduced after industries in settled areas complained that tax-free goods meant for tribal regions were often being sold in other markets, giving some businesses an unfair advantage.

In the same way, imports of plant, machinery, and equipment for installation in tribal areas, as well as industrial raw materials used by industries there, will also face a 12 percent sales tax in FY2026-27.

The electric vehicle sector is another area likely to lose tax benefits. Several incentives for EVs are set to expire on June 30, 2026. These include sales tax exemptions on the import of completely knocked down kits used for the local assembly of electric vehicles, including small cars, SUVs with battery capacity up to 50 kWh, and light commercial vehicles with batteries up to 150 kWh.

The reduced 1 percent sales tax currently available on locally manufactured or assembled electric vehicles in these categories is also expected to end on the same date. In addition, tax concessions for hybrid electric vehicles, where sales tax rates currently range from 8.5 percent to 12.75 percent, may also lapse unless the government decides to renew them.

Another relief measure nearing expiry is the exemption from value-added sales tax on EV CKD kits and certain imported fully built electric vehicles. That benefit, too, will only remain in place until the end of June 2026 unless extended.

Other concessions likely to end 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 say the withdrawal of these exemptions is part of a broader government strategy to simplify the tax system, remove distortions in the market, and bring previously exempt sectors and regions into the regular tax structure.

In simple terms, from July 2026, many people, businesses, and industries that were paying reduced taxes or no taxes at all may begin paying standard taxes. For consumers, this could mean higher costs in some sectors, especially where businesses pass on the extra tax burden.

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