Pakistan is facing renewed fiscal pressure from the International Monetary Fund (IMF), which has reportedly proposed raising the standard General Sales Tax (GST) rate by 1 percentage point—from 18% to 19%—in the upcoming federal budget for 2026-27.
According to official sources, Pakistani economic managers have pushed back against the proposal, arguing that any further increase in indirect taxes would add to inflationary pressures already affecting households.
If approved, the proposed adjustment is estimated to generate between Rs250 billion and Rs300 billion in additional revenue.
Revenue Shortfall Behind IMF Proposal
Sources said the IMF’s proposal comes after concerns over weaker-than-expected tax performance in the current fiscal year. While the Federal Board of Revenue (FBR) is projected to approach the Rs13 trillion collection level, officials acknowledge that the original target may not be fully achieved.
In response, the IMF has reportedly urged Pakistan to strengthen revenue measures, including adjustments in the GST structure, to bridge fiscal gaps.
Additional Tax and Policy Changes Under Discussion
Beyond the GST proposal, the IMF has also recommended ending concessional tax treatment on hybrid vehicles by increasing GST from 8.5% to the standard 18% once the current incentive regime expires in 2026. Discussions on electric vehicle taxation are also ongoing.
For the retail sector, the IMF has backed a simplified fixed-tax scheme for small traders with annual turnover up to Rs200 million, under which eligible retailers would pay a fixed Rs25,000 tax and be exempt from routine audits, unless significant discrepancies are detected.
The IMF has also suggested alternative revenue measures to address gaps in taxation of the salaried class, while considering a possible reduction in the Super Tax by 1.5% to 2% in the next budget.
Ongoing Negotiations
Officials say negotiations between Pakistan and the IMF are still in progress and are expected to continue even after the federal budget is presented in parliament. Last-minute revisions remain possible before final approval of the budget.
When contacted, Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial rejected claims that any such proposal has been finalized, stating that no decision of this nature is currently under consideration.
