IMF proposes Rs15.6 trillion tax target for next budget, Pakistan resists new measures

The International Monetary Fund (IMF) has proposed setting Pakistan’s tax target at Rs15.6 trillion for the fiscal year 2026-27 along with new revenue measures, but Pakistan authorities have not agreed to the proposals so far, The Express Tribune reported. 

Officials said the plan, discussed during recent staff-level talks, would require at least Rs400 billion in additional taxation measures from July to meet the proposed target. The IMF has also suggested increasing the tax-to-GDP ratio to 11.3 percent, compared to around 10.7 percent that authorities consider achievable.

Among the proposals are withdrawal or reduction of sales tax exemptions on fuel and newly constructed homes, along with extending taxation to existing solar panel users who were earlier exempted under revised net billing rules. Authorities indicated these measures remain under consideration and may be revisited in the next round of talks.

The government has opposed imposing general sales tax on fuel, citing revenue-sharing constraints with provinces. Currently, it collects around Rs106 per litre in petroleum levy on petrol, which is retained fully at the federal level.

Discussions also included an asset-based tax on small and medium enterprises and traders. The Federal Board of Revenue has raised concerns about implementation capacity, particularly in assessing asset bases of small businesses.

Another proposal under review is the imposition of 18 percent sales tax on existing solar panel consumers. The issue has become sensitive after recent changes shifting from net metering to net billing, with earlier exemptions granted following public response.

Pakistan and the IMF have reached a staff-level agreement, but final approval by the executive board is linked to the recovery of Rs322 billion from court cases already decided in favour of the government. Officials said around Rs280 billion has been recovered so far.

The IMF is expected to send another mission in early May to finalise budget measures, including tax proposals. Officials said the suggested measures to expand the tax base are likely to be discussed again during those talks.

The FBR faces challenges in meeting the current year’s revised tax target of Rs13.98 trillion, raising concerns over its ability to achieve next year’s proposed target. Authorities indicated that even reaching Rs15 trillion would depend on actual collections this year.

The IMF has maintained that the next fiscal year’s primary surplus target of 2 percent of GDP must be achieved through permanent tax measures, including higher collection from existing taxpayers. The government, meanwhile, has sought space to reduce tax rates for certain sectors, with the IMF indicating that any such relief would need to be offset through additional revenue measures.