ISLAMABAD – June 10, 2025 – The Federal Government of Pakistan has prioritized the development of special administrative regions in its recently unveiled Federal Budget for the fiscal year 2025-26. A substantial PKR 164 billion has been earmarked for the uplift of Azad Jammu and Kashmir (AJK), Gilgit-Baltistan (GB), and the merged districts of Khyber Pakhtunkhwa (KP).
The proposed development allocations are as follows:
- Azad Jammu and Kashmir (AJK): PKR 48 billion
- Gilgit-Baltistan (GB): PKR 48 billion
- Merged Districts of Khyber Pakhtunkhwa (KP): PKR 68 billion
These allocations are part of the broader Public Sector Development Programme (PSDP) for the upcoming fiscal year, aiming to bring these regions into the national mainstream of development.
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However, the budget also proposes significant tax reforms for the merged districts of Khyber Pakhtunkhwa (formerly FATA/PATA) and Balochistan, indicating a shift towards broadening the tax net. The long-standing tax exemptions in these merged districts are proposed to be phased out.
A key element of this change is the proposal to impose a 10% sales tax on goods (or other items/transactions) in these merged districts, to be implemented in a phased manner. Recent reports suggest that the Federal Board of Revenue (FBR) is planning to levy an 18% sales tax on goods manufactured in these areas, effective July 1, 2025, which would end years of tax relief. This move is expected to generate significant revenue for the government.
The government’s decision reflects mounting fiscal pressures and its commitment to international lenders like the IMF to expand the tax base. While aimed at enhancing revenue, this move is anticipated to face scrutiny from stakeholders in the merged areas, where economic development is still in nascent stages.
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