IMF Pushes for GST Increase as Pakistan Resists Ahead of Budget Talks
By Shahzad Paracha :
Pakistan and the International Monetary Fund (IMF) remain locked in difficult negotiations ahead of the federal budget for fiscal year 2026-27, with the lender reportedly urging Islamabad to raise the standard General Sales Tax (GST) rate from 18 per cent to 19 per cent in a bid to boost revenue collection.
According to media reports, Pakistani authorities have so far opposed the proposal, arguing that an increase in indirect taxation would place additional pressure on consumers already facing high living costs and could fuel inflation across the economy.
The discussions are taking place as the government works to finalise next year’s budget under commitments linked to its IMF-supported economic programme. Revenue generation has emerged as a key point of contention after tax authorities struggled to meet collection targets during the outgoing fiscal year.
Officials familiar with the talks estimate that a one-percentage-point increase in the GST rate could generate between Rs250 billion and Rs300 billion in additional revenue annually. The IMF is said to have proposed the measure after reviewing Pakistan’s fiscal performance and observing a likely shortfall in tax receipts for the current year.
While the Federal Board of Revenue (FBR) is expected to approach the Rs13 trillion mark in tax collection, analysts believe achieving the revised target remains challenging. The revenue gap has intensified pressure on policymakers to identify new sources of income before the budget is presented.
Sources said the IMF believes additional taxation measures may be necessary to maintain fiscal discipline and ensure the government remains on track with agreed economic reforms. The Fund has also reportedly projected average inflation of around 8.4 per cent during the next financial year, a forecast that has added to concerns about the potential impact of any further tax increases on households and businesses.
Government officials, however, have argued that raising the GST could undermine economic recovery efforts by increasing prices of goods and services across multiple sectors. Policymakers have instead been urging the IMF to support alternative approaches focused on broadening the tax base and improving compliance rather than increasing tax rates on existing taxpayers.
In addition to the proposed GST increase, discussions are also continuing over taxation of environmentally friendly vehicles. Reports suggest the IMF has recommended raising the GST rate on hybrid vehicles from the current 8.5 per cent to the standard 18 per cent once existing incentives expire in 2026. Negotiations on the future tax treatment of electric vehicles are also ongoing.
The talks have extended beyond indirect taxation. The IMF has reportedly endorsed a fixed tax regime for small retailers, under which businesses with annual turnover of up to Rs200 million would pay a fixed tax of Rs25,000 and be exempt from routine audits. Under the proposed arrangement, audits would only be initiated if significant discrepancies in declared income or assets are identified.
The government is also seeking tax relief for salaried individuals, who have faced higher tax burdens in recent years. However, IMF officials are understood to be requesting compensatory revenue measures before approving any reduction in taxes for wage earners.
Meanwhile, discussions are underway regarding the Super Tax imposed on large corporations. Sources indicate the IMF may consider allowing a reduction of between 1.5 and 2 percentage points in the levy as part of broader fiscal adjustments.
Economic experts note that the final shape of the budget is likely to remain fluid even after its presentation in parliament. Traditionally, negotiations between Pakistan and the IMF continue after the budget announcement, often resulting in amendments before the finance bill receives final approval.
Responding to reports about the proposed GST increase, FBR Chairman Rashid Mahmood Langrial denied that such a measure was currently under consideration, signalling that discussions between the government and the IMF remain ongoing and no final decisions have yet been made.
The federal budget, expected to be unveiled in the coming days, is being closely watched by businesses, investors and consumers alike as it will set the direction of Pakistan’s fiscal policy, taxation framework and economic priorities for the year ahead.
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