Pakistan will wind down Export Processing Zones and Special Economic Zones across the country by 2035. The commitment falls under the IMF conditions for Pakistan tied to the ongoing Extended Fund Facility, and it was laid out to a parliamentary subcommittee on Tuesday.
The goal, according to officials, is to fold every sector into one uniform tax regime instead of letting zone-based enterprises operate under separate rules.
Background
Pakistan has leaned on EPZs and SEZs for decades to pull in export-oriented investment. Companies inside these zones get tax holidays, customs relief on machinery, and other perks not available to firms operating outside them.
That setup is now colliding with the IMF’s push for a flatter, less exception-riddled tax system. The Fund has argued the current model distorts competition and drains revenue the government badly needs.
Pakistan is roughly two years into a $7 billion, 37-month Extended Fund Facility approved in September 2024. The programme has already produced dozens of structural conditions touching tax policy, energy pricing, and state enterprises, and the EPZ and SEZ rollback is one of the more consequential ones for industry.
Details
The Senate Standing Committee on Finance and Revenue’s subcommittee met on Tuesday, chaired by Talha Mahmood, with Dr Afnan Ullah Khan, Bilal Khan, and Jam Saifullah Khan also present. The Ministry of Industries and Production briefed members on where things stand with EPZs and SEZs.
Officials told the panel that under the IMF’s Extended Fund Facility conditionality, all such zones will lose their special status by 2035, folding every sector into the same tax framework. The stated aim is to remove the economic distortions created by parallel tax regimes.
Under the broader plan, the government has already committed to amending the Special Economic Zones Act and the Special Technology Zones Authority Act by June 2027. That amendment will shift the incentive model away from open-ended profit-based exemptions and toward narrower, cost-based support tied to actual investment and export performance. Existing zone authorities will also lose the power to grant fresh tax concessions on their own.
No new EPZs or SEZs are expected to be approved in the meantime, and export processing zones will also be barred from selling into the domestic market, a restriction the government has committed to enforcing this year.
Quotes
After hearing the ministry’s briefing, the subcommittee’s convener said EPZs and SEZs should not be left worse off by the change and pushed the government to reopen talks with the IMF. The panel’s core concern was straightforward: protect Pakistan’s existing industrial and investment base while the tax system is restructured.
The Ministry of Industries and Production, for its part, described the move as necessary to eliminate distortions and put every sector on equal footing under the tax code.
Impact
Exporters based in these zones are watching closely. Losing tax holidays over the next decade could raise operating costs for firms that built their business models around zone incentives, particularly in textiles, light engineering, and newer sectors like special technology parks.
Provincial governments are not fully aligned either. Some have previously resisted the idea of a blanket freeze on new zones, arguing it limits their ability to attract investment in less-developed regions.
For the IMF, though, this is one piece of a much larger fiscal repair job in Pakistan, one that also covers energy tariffs, agricultural income tax, and social spending through the Benazir Income Support Programme.
Conclusion
The subcommittee’s recommendation to renegotiate does not carry the force of law, and the government has given no public indication it plans to reopen this specific condition with the Fund. The more likely path is that Islamabad tries to soften the transition for existing investors while sticking to the 2035 deadline on paper.
Pakistan and the IMF are set to begin the fourth review of the $7 billion programme in September 2026, and the SEZ and EPZ timeline is expected to come up again as part of that process.
Frequently Asked Questions
What is the current IMF program in Pakistan?
Pakistan is currently under a 37-month Extended Fund Facility worth about $7 billion, approved by the IMF’s Executive Board in September 2024. It runs alongside a smaller Resilience and Sustainability Facility arrangement and is meant to help Pakistan stabilise its finances, rebuild foreign exchange reserves, and carry out structural reforms in tax policy, energy pricing, and state-owned enterprises. Several billion dollars of the total have already been disbursed across multiple tranches following successive IMF reviews.
How many IMF programs has Pakistan had?
Pakistan has turned to the IMF around 25 times since 1958, making it one of the Fund’s most frequent borrowers. The current Extended Fund Facility is the country’s sixth arrangement of that specific type. Earlier programmes include the 2019 EFF under the previous government and the nine-month Stand-By Arrangement completed in 2023, which set the stage for the current deal.
What is the new IMF agreement with Pakistan?
The latest agreement is the $7 billion Extended Fund Facility approved in September 2024, built on the stabilisation gains from the 2023 Stand-By Arrangement. It carries conditions covering a broader tax base, energy sector adjustments, stronger oversight of state enterprises, and the gradual phase-out of tax incentives in Export Processing Zones and Special Economic Zones by 2035. The programme is being reviewed periodically, with the fourth review due to start in September 2026.
