Pakistan to Gradually End SEZ Tax Exemptions Under IMF-Backed Reforms

Islamabad: The federal government is preparing to gradually withdraw tax exemptions for businesses operating within Special Economic Zones (SEZs) over the next decade, beginning July 2024. This policy shift aligns with Pakistan’s commitments to the International Monetary Fund (IMF) and is part of broader fiscal reforms aimed at improving long-term economic sustainability.

As part of the upcoming federal budget, amendments will be introduced to limit the current indefinite tax-free status to a fixed period of nine years for SEZ enterprises. This move reflects the IMF’s concerns regarding the long-term fiscal burden posed by these incentives.

To guide the reform process, the government has engaged consultancy firm AT Kearney to assess the financial impact and efficiency of SEZ tax breaks. The firm’s findings, due by the end of June, will shape the detailed policy framework expected to be finalized by June 2025.

Under the new approach, the government will cease offering profit-based tax incentives, opting instead for cost-based benefits. Existing incentives will not be extended, and no new fiscal concessions will be granted to upcoming SEZ projects. However, contractual obligations will be honored, and adjustments will be made where renegotiation is legally feasible.

The phase-out is scheduled to conclude by 2035. While the reforms may face resistance from SEZ stakeholders, the government maintains that this transition is essential for creating a fairer, more transparent, and fiscally responsible economic environment.