Pakistan’s finance team is actively working to convince the International Monetary Fund (IMF) to forgo its demand to raise the Federal Excise Duty (FED) on fertilisers from 5% to 10% in the upcoming budget, The News reported.
If the IMF agrees, the FED on fertiliser will remain at the current rate of 5% in the 2025-26 budget. Furthermore, the proposal to impose a 5% FED on pesticides is expected to be dropped, following the intervention of the Prime Minister’s Office.
Prime Minister Sharif has also instructed the Federal Board of Revenue (FBR) to review the proposed tariff rationalisation plan at the import stage, particularly concerning how it could affect the import bill. While the FBR raised concerns about potential mis-declaration of goods to evade taxes like withholding taxes and GST, the Prime Minister’s team is working to ensure accurate calculations of the potential impact.
However, the IMF has maintained its stance against extending the tax exemption for the erstwhile FATA/PATA regions, where General Sales Tax (GST) is set to be imposed in the next budget. The government had previously pushed to extend the exemption, but political pressures have not succeeded in altering the IMF’s position.
Officials now expect a reduced GST rate of 12% to be implemented in FATA/PATA under the Finance Bill for 2025-26.
The task of convincing the IMF to maintain the lower FED on fertilisers and avoid new taxes on pesticides was difficult, especially since the IMF had previously agreed to the increase in the FED for the 2025-26 fiscal year.
Nevertheless, Pakistan’s economic team argued that such tax hikes, combined with the implementation of the Agriculture Income Tax (AIT) across all provinces, could worsen the sector’s already struggling productivity. As a result, the IMF appears to have relented on these points.
The IMF’s refusal to extend the tax exemption for FATA/PATA, however, marks a shift from the previous fiscal year when the exemption was successfully preserved, largely due to opposition from a federal minister. Now, the IMF is insistent on implementing GST in these regions starting with the 2025-26 budget.
