Pakistan to End SEZ, STZ Tax Breaks Under IMF Deal

In a major shift that could reshape Pakistan’s investment landscape, the government has announced it will remove tax exemptions currently granted to Special Economic Zones (SEZs) and Special Technology Zones (STZs), following commitments made under its agreement with the International Monetary Fund (IMF).

The decision was revealed during a meeting of the Senate Standing Committee on Finance held on Thursday and chaired by Senator Saleem Mandviwalla. Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial delivered the announcement, highlighting the government’s commitment to phasing out tax concessions as part of its economic reform obligations to the IMF.

Our hands are tied, We are withdrawing various tax concessions across sectors, and no SEZ or STZ will receive tax relief going forward.”

-Rashid Mahmood Langrial

SEZ STZ tax exemptions: IMF Deal Drives Shift in Tax Policy

The decision stems from Pakistan’s broader fiscal reform commitments to the IMF, which include eliminating all tax exemptions by 2035. The move is part of an effort to broaden the tax base, improve transparency, and ensure fiscal sustainability in a country facing chronic revenue shortfalls and repeated balance-of-payments crises.

In its last review, the IMF had specifically urged Pakistan to rationalize tax expenditures, citing them as a major source of revenue leakage. The Fund estimates Pakistan’s tax exemptions cost the economy more than Rs 2.2 trillion annually, with SEZs and STZs making up a substantial portion.

What Are SEZs and STZs, And Why This Matters

The rollback of tax exemptions marks a pivotal shift in how Pakistan balances growth incentives with fiscal responsibility. While the IMF’s prescription may help plug revenue leaks, it also risks undermining sectors that rely heavily on state-backed incentives to thrive, particularly technology, export-oriented manufacturing, and infrastructure development.

Special Economic Zones and Special Technology Zones were created to boost foreign direct investment (FDI), promote industrialization, and support technology-driven entrepreneurship. These zones offer attractive incentives such as tax holidays, customs duty exemptions, and reduced corporate income tax rates.

The Special Technology Zones Authority (STZA) was particularly seen as a catalyst for Pakistan’s digital economy, offering 10-year tax breaks to tech startups, exporters, and IT infrastructure companies.

The scrapping of these exemptions could

• Deter future foreign and domestic investment in these zones.
• Slow down tech ecosystem development, especially in Islamabad, Lahore, and Karachi, where STZs are active.
• Erode investor confidence, as companies that entered zones expecting tax relief may reconsider or seek legal recourse.

The announcement has drawn immediate concern from industry stakeholders, who say the move could unravel years of policy work aimed at making Pakistan investment-friendly.

Others pointed out the risk of capital flight, as companies with regional operations might shift to neighboring hubs like Dubai, Bengaluru, or Tashkent, where long-term policy certainty is more stable.

Officials indicated that some targeted support may still be offered under new industrial policy frameworks, but not in the form of across-the-board tax holidays or blanket exemptions.

5% Tax on Foreign Online Platforms Also Approved

In a related development, the Senate finance committee also approved a proposal to impose a 5% tax on foreign online platforms operating in Pakistan. 

The move is seen as a revenue-enhancing measure aligned with global digital tax trends. However, digital rights experts caution that this tax could be passed on to consumers and discourage investment in Pakistan’s already underdeveloped digital ecosystem.