The Government of Pakistan is pushing back against several proposals from the International Monetary Fund, including a suggested Rs. 15.6 trillion tax collection target and the withdrawal of key sales tax exemptions.
The proposals were discussed during recent staff-level talks ahead of Pakistan’s FY2026–27 budget, but officials have so far declined to accept them. Under the IMF framework, Pakistan would need to introduce at least Rs. 400 billion in new revenue measures to raise the tax-to-GDP ratio to around 11.3 percent. However, local tax authorities estimate collections may only reach about 10.7 percent, leaving a notable gap.
One of the IMF’s key suggestions is to withdraw or reduce sales tax exemptions on fuel and newly constructed homes. Pakistani officials have resisted applying general sales tax on petroleum products, as GST revenues are shared with provinces, unlike the petroleum levy, which is retained entirely by the federal government. The levy on petrol already stands at around Rs. 106 per litre.
Another proposal under discussion involves imposing an 18 percent sales tax on existing rooftop solar users, who were previously exempt when the government transitioned from net metering to net billing. Prime Minister Shehbaz Sharif had earlier directed authorities to maintain exemptions following public backlash, but officials indicate the matter could return in the next round of talks scheduled for May.
The IMF has also proposed introducing an asset-based tax targeting small and medium-sized enterprises, including traders. However, the Federal Board of Revenue has opposed the idea, citing limited administrative capacity to assess asset bases for smaller businesses.
Pakistan has reached a staff-level agreement with the IMF, but final approval by its executive board remains conditional on the recovery of Rs. 322 billion in taxes from court cases already decided in the government’s favor. So far, around Rs. 280 billion has reportedly been collected.
Meanwhile, uncertainty continues over whether the FBR will meet its revised Rs. 13.98 trillion tax target for the current fiscal year, raising questions about the feasibility of achieving next year’s higher target.
The IMF has emphasized the need for Pakistan to maintain a primary budget surplus of around 2 percent of GDP, supported by permanent tax measures. Any relief provided to businesses or other sectors would need to be offset through new revenue steps, including the possibility of increasing the standard sales tax rate.
