• In letter to premier, CM Afridi says federal commitments to provide financial support, assistance for integration and uplift remain unfulfilled
• Warns move will discourage investment, weaken economic recovery
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’s commitments to provide financial support and institutional assistance for the integration and development of the region were substantially fulfilled.
KP Chief Minister Muhammad Sohail Afridi, in a letter addressed to Prime Minister Shehbaz Sharif, drew the premier’s attention to what he called the “unjustified withdrawal of tax exemptions from the merged districts and Malakand division in the Federal Budget 2026-27”.
“The issue is not one of taxation per se, but of introducing taxation against the commitments made by the federation at the time of the merger of both regions,” the letter said.
It said the merger of the erstwhile Fata with KP was founded on a broad national consensus and accompanied by explicit commitments by the federation to provide sustained financial support and institutional assistance for the successful integration and development of the region.
However, the letter noted that despite the province’s unwavering commitment to implementing the merger, many of those commitments remained outstanding, while KP continued to shoulder disproportionate financial, administrative and security responsibilities.
Besides, the letter pointed out that the federal commitment regarding the province’s share under the National Finance Commission (NFC) Award had yet to happen.
It said KP continued to serve as Pakistan’s frontline province in the fight against terrorism and had rendered unparalleled sacrifices in terms of human lives, economic losses and the destruction of public infrastructure.
“The province continues to incur significant expenditures on law and order, policing, counter-terrorism operations, rehabilitation of affected communities and reconstruction of damaged infrastructure in the larger national interest,” it said.
The letter said the prolonged disruption of legal cross-border trade and transit with Afghanistan had significantly reduced commercial activity, particularly in the border districts, whose local economies had historically depended on such trade.
“These challenges are compounded by persistent locational disadvantages, inadequate infrastructure, limited industrialisation, high transportation costs and energy constraints, all of which continue to impede private investment, employment generation and sustainable economic growth,” it said.
The letter said the tax exemptions applicable to the merged districts and Malakand were conceived as transitional measures to promote investment, encourage industrialisation, generate employment and facilitate the economic integration of historically disadvantaged regions.
However, it said many of the underlying socio-economic conditions that justified those incentives continued to exist.
‘Discourage investment’
“Their withdrawal at this stage — before the intended developmental objectives have been realised and before the federation has fulfilled its commitments — is likely to discourage investment, weaken economic recovery and place an additional burden on local businesses and communities,” the letter said.
It said that in 2024, the federal government had constituted a committee headed by Rana Sanaullah, then the federal minister for inter-provincial coordination, to assess the prevailing ground realities and engage with stakeholders from the merged districts and Malakand before making recommendations on the proposed taxation measures.
“However, the committee held only a limited number of meetings and no recommendations were finalised. The proposed withdrawal of tax exemptions has nevertheless been undertaken without completion of the envisaged consultative process or adequate consultation with the provincial government and local stakeholders,” it said.
The letter said that until the federation fulfilled its commitments regarding the promised NFC share and the restoration of cross-border trade, such a decision “may undermine public confidence” and “have adverse implications for law and order” in these sensitive areas.
Besides, it said the KP Assembly, through a unanimous resolution, had urged the federal government to defer the proposed taxation measures until the commitments made to the province were fulfilled.
Published in Dawn, July 9th, 2026