In a move aligned with its commitment to the International Monetary Fund (IMF), the federal government plans to phase out the tax-free status for Special Economic Zones (SEZs) over the next decade, The Express Tribune reported, citing sources.Â
As part of this commitment, the government plans to amend the tax laws in the upcoming budget, reducing the existing tax-free status for SEZs to nine years, starting from July.
According to the news report, the government has assured the IMF that it will no longer provide companies in these economic zones with fiscal incentives, such as tax breaks and subsidies, which have been part of the incentive package for businesses in SEZs.
To support this policy change, the government has enlisted the consultancy firm AT Kearney to assess the fiscal costs and the effectiveness of the incentives currently being provided to SEZs. The firm’s report, which will help inform future policy, is expected to be completed by the end of June.
Under the revised strategy, no new fiscal incentives will be granted to either new or existing SEZs, and the renewal of existing incentives will not be permitted.Â
By June 2025, the government aims to have a detailed plan based on the assessment, with the ultimate goal of phasing out all existing SEZ incentives by 2035, barring any pre-existing contractual obligations.
The transition will involve replacing profit-based incentives with cost-based incentives between 2024 and 2035, with a focus on adhering to legal commitments for current SEZ agreements. For those SEZs where contracts allow early termination or renegotiation, Pakistan will phase out the existing incentives as much as possible within the bounds of these legal provisions.
