The IMF has asked Pakistan to raise the standard General Sales Tax rate to 19 percent in the upcoming budget.
Ahead of the 2026-27 federal budget, the International Monetary Fund has asked Pakistan to increase the standard GST rate by one percentage point, from 18 percent to 19 percent. Pakistani authorities have resisted the demand so far. They argue that the move would add to inflationary pressure, according to a report by The News.
Rough estimates suggest the GST hike would have a revenue impact of Rs250 to Rs300 billion if budget makers agree to it.
The IMF proposed the increase after a shortfall in the revised tax collection target for the outgoing fiscal year. The Federal Board of Revenue may come close to the Rs13 trillion mark, but sources say it appears difficult for the tax machinery to meet the target. The IMF cited this weak performance as the Reason for seeking the higher rate.
Top official sources said the 1 percent hike would carry a revenue impact of Rs250 to Rs300 billion. They added that the IMF had projected CPI-based inflation averaging around 8.4 percent in the coming financial year.
According to sources, the IMF mission failed to present new ideas to expand the narrow tax base and had exhausted other options before proposing the GST increase.
IMF Budget Proposals on GST, Vehicles, and Retailers
The IMF also asked Pakistan to raise GST on hybrid vehicles from 8.5 percent to the standard rate of 18 percent in the upcoming budget. The existing policy on hybrids is set to expire in 2026. Discussions on electric vehicles were still ongoing between the two sides.
The Fund has endorsed a fixed scheme for retailers in the coming budget. Under the plan, retailers with turnover up to Rs200 million would pay a fixed tax of Rs25,000 and would be exempt from audit. If the FBR finds a major discrepancy in income or assets, it can still order an audit, but it would take the retailers’ representatives into confidence first. Retailers would also receive an FBR QR code certificate.
For the salaried class, the government is negotiating with the IMF team for some relaxations. So far, the Fund has asked for alternative revenue measures to bridge the gap. The IMF may agree to reduce the Super Tax rate by 1.5 to 2 percent in the budget for fiscal year 2026-27.
Sou said tough negotiations with the IMF are underway and will continue even after the budget is presented in parliament. They expect last-minute changes between the presented budget and the version approved by parliament for 2026-27.
Stay tuned for more updates and news!
