The ICC has had a long-running feud with India over the tax issue. The country was scheduled to host the 2004 edition of the tournament but it was played in England last September because the Indian government refused to change its policy.
"The board has resolved that the 2006 Champions Trophy be held in India subject to tax clearances from the Indian government," ICC President Ehsan Mani told reporters after the governing body's two-day executive meeting.
"We've agreed to wait until May for the Indian government to inform us about their decision. The board has voted to move the event to Pakistan in case the proposed tax concessions don't come through," he added.
The tournament is scheduled to be held in September-October next year. Mani said the Pakistan board had assured the ICC that their government would offer a complete tax waiver.
The ICC has said in the past that it is in no position to give away a big percentage of its income to any government agency and so India will not be able to hold big cricket events, including the World Cup, unless the tax is removed.
India last hosted the World Cup, jointly with Pakistan and Sri Lanka, in 1996. Some of the tax issues from that tournament have still not been resolved.
"That's one reason why we want to be absolutely clear right now," Mani said.
The ICC also announced the president's term of office had been extended from two years to a three-year period. This means Mani, whose tenure was due to end in June, will be in office until mid-2006.
The world governing body is also considering an extension to the five-year calendar for home and away Test series.
According to ICC rules, all Test teams should play at least one two-Test home and away series against every other side over a period of five years.
"We had the option of shortening the current five-year programme, keep as it is or make it a six-year programme. The six-year programme is certainly the favourite at this point," Malcolm Speed, the ICC's chief executive, said.
