PESHAWAR: The Khyber Pakhtunkhwa government has asked the federal government to defer the proposed withdrawal of tax exemptions in Malakand division and the newly merged tribal districts until the Centre fulfils its commitments on financial support and institutional assistance for the region.
In a letter to Prime Minister Shehbaz Sharif, KP Chief Minister Muhammad Sohail Afridi called the proposed withdrawal of exemptions in the Federal Budget 2026-27 unjustified.
He said the issue was not taxation itself, but the imposition of taxes before commitments made by the federation at the time of the merger had been fulfilled.
The chief minister said the merger of erstwhile Fata with KP was based on national consensus and accompanied by commitments from the federal government to provide sustained financial and institutional support for integration and development.
However, he said many of those commitments remained outstanding, including KP’s promised share under the National Finance Commission Award.
The letter said KP continued to bear financial, administrative and security responsibilities linked to the merger while also serving as Pakistan’s frontline province in the fight against terrorism.
It said the province continued to spend on law and order, policing, counter-terrorism operations, rehabilitation of affected communities and reconstruction of damaged infrastructure.
The KP government also cited the prolonged disruption of legal cross-border trade and transit with Afghanistan, saying it had reduced commercial activity in border districts that historically depended on such trade.
The letter said the region continued to face locational disadvantages, inadequate infrastructure, limited industrialisation, high transportation costs and energy constraints, all of which restricted private investment, job creation and growth.
It said the tax exemptions for Malakand and the merged districts were intended as transitional measures to promote investment, industrialisation, employment and economic integration in historically disadvantaged areas.
Their withdrawal at this stage, the chief minister warned, could discourage investment, weaken economic recovery and increase the burden on local businesses and communities.
The letter also noted that in 2024, the federal government formed a committee headed by Rana Sanaullah, then federal minister for inter-provincial coordination, to assess ground realities and consult stakeholders before recommending taxation measures. However, the committee held only limited meetings and did not finalise recommendations.
The KP government said withdrawal of exemptions without completing consultations with the provincial government and local stakeholders could undermine public confidence and affect law and order.
The letter added that the KP Assembly had unanimously urged the federal government to defer the proposed taxation measures until commitments made to the province were fulfilled.
