Khyber Pakhtunkhwa Chief Minister Sohail Afridi has formally requested Prime Minister Shehbaz Sharif to reconsider the federal government’s decision to end the longstanding tax exemption for the merged tribal districts and Malakand Division. Afridi emphasized that revoking this tax-free status would severely impact local businesses, hinder economic progress, and contradict the province’s broader interests.
Following the historic 2018 merger of the former tribal agencies into Khyber Pakhtunkhwa, Afridi highlighted that many federal commitments remain unmet. He stressed that the provincial government is currently shouldering the financial and administrative responsibilities of the merger alone. Furthermore, Khyber Pakhtunkhwa has yet to receive its allocated funds for the development of these regions as per the National Finance Commission (NFC) Award.
The chief minister criticized the federal decision to remove tax exemptions as unilateral, done without consulting the provincial government, which undermines the principles of federalism and inter-governmental cooperation. He also noted that the Khyber Pakhtunkhwa Assembly had unanimously passed a resolution calling for a delay in the tax imposition.
Given the constitutional and economic fragility of Malakand and the merged districts, Afridi urged the federal government to either withdraw or postpone the new taxes to protect public confidence and regional livelihoods.
On July 1, 2026, the federal government terminated the decades-old tax holiday for these regions, integrating them into the national tax system for the first time since Pakistan’s independence. The 2026-27 federal budget now requires industrial units in these areas to pay a 12 percent sales tax on industrial production alongside a 7 percent income tax.
Historically, FATA and PATA were exempt from federal taxes to address their economic backwardness, neglect, and infrastructural challenges. After the 2018 merger, a temporary tax waiver was granted to protect the local economy, but its expiration has caused widespread concern among business communities.
Local industrialists and trade representatives warn that the sudden tax imposition could devastate an already fragile manufacturing sector, which suffers from security issues and logistical challenges. The provincial department of industries reports that hundreds of manufacturing units in steel, ghee, and textiles operate in the merged districts and Malakand, employing tens of thousands.
Al-Haj Muhammad Shafique Afridi, a steel mill owner and former provincial lawmaker from Jamrud, highlighted ongoing problems such as terrorism, underdevelopment, and unemployment. He argued that taxation should only follow when infrastructure matches that of more developed industrial centers like Punjab and Sindh.
Industrialists also cited poor roads, frequent power outages, a lack of skilled workers, limited banking services, and high freight costs from Karachi seaport as factors that increase production expenses.
Syed Jawad Hussain Kazmi, chairman of the Pakistan Borders’ Trade Council, recalled verbal assurances from Islamabad promising a 10-year tax-free transition period at the time of the merger. He warned that due to a militant resurgence and the suspension of Pak-Afghan trade over the past eight months, over half of the industrial units in these areas have already closed.
Kazmi cautioned that imposing taxes now could destroy the remaining industries, lead to mass layoffs, and exacerbate law and order problems.
Business delegations have presented their concerns to Federal Commerce Minister Jan Jamali, who indicated that the federal cabinet might consider a short-term extension or an alternative relief package to address the situation.
