By Staff Reporter
ISLAMABAD: Pakistan will eliminate tax and duty concessions for its export processing zones by 2035 under conditions attached to a $7 billion International Monetary Fund loan program, a senior government official told lawmakers, as a Senate panel pressed the administration to renegotiate terms it warned could damage industrial output and investor confidence.
Saif Anjum, secretary of the Ministry of Industries and Production, told a subcommittee of the Senate Standing Committee on Finance and Revenue that the government has been unable to persuade the Fund to drop a requirement barring Export Processing Zones from selling goods into Pakistan’s domestic market. The condition, tied to the Extended Fund Facility program, must be met by September 2026, he said.
The Fund is restricting the zones from selling as much as 20% of their output locally, Anjum said, a curb that would eliminate what he described as a critical buffer for export-oriented manufacturers even though it does not distort the broader domestic market. The industries affected generate roughly $800 million in annual exports, he told the panel meeting in Islamabad on Tuesday.
“We have to comply with the Fund’s condition regarding EPZs, set under the EFF arrangement by September 2026,” Anjum said.
The zones and a parallel category of Special Economic Zones will be phased out entirely by 2035 as Pakistan moves to bring all industrial sectors under a single, uniform tax regime and eliminate the market distortions that preferential treatment creates, the committee was told.
The subcommittee, convened by Senator Talha Mahmood, recommended that the government return to the Fund to renegotiate the terms, arguing the zones underpin export competitiveness and investment flows that Pakistan can ill afford to lose. Senators Afnan Ullah Khan, Bilal Khan and Jam Saifullah Khan also attended the session.
Mian Zahid Hussain, chairman of the Policy Advisory Board at the Federation of Pakistan Chambers of Commerce and Industry, urged the government to preserve what is known as the 80/20 arrangement, under which zone-based factories can sell a fifth of production domestically after paying full duties and taxes. He warned that scrapping the framework would undermine investor confidence, disrupt trade operations and risk shutting down dozens of industrial units.
Manufacturing inevitably produces off-grade and lower-quality materials that account for close to a fifth of total output, Hussain told the panel, and current rules allow those goods into the domestic market only after customs clearance and payment of duties, sales tax and income tax.
An official from the Federal Board of Revenue told the committee the matter is currently before the courts and that the IMF has not intervened in the litigation, though the Fund could press the government to pursue the case. On the separate question of Special Economic Zones, the official said the FBR has until 2035 to decide whether to wind down existing arrangements or overhaul them.
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