Pakistan is facing continued pressure from the IMF to tighten its finances ahead of the next federal budget, with taxation emerging as a key focus. During talks for the FY 2026–27 budget under the IMF’s Extended Fund Facility, officials have discussed contingency tax measures that could be activated if revenue targets are missed or spending limits are breached.
One major proposal is to apply the standard 18% General Sales Tax to goods and services that currently enjoy lower rates or exemptions. This includes imported solar panels, higher withholding tax on internet services, and the removal of tax exemptions on locally manufactured hybrid electric vehicles and electric bicycles. The IMF argues that uniform tax rates are necessary to broaden the tax base and increase revenue.
These discussions reflect Pakistan’s struggle to raise its tax-to-GDP ratio and meet IMF-agreed fiscal targets. While the government has shown resistance to introducing new taxes, negotiations continue over how to balance revenue needs with economic growth and public relief.
If adopted, the 18% tax measures would highlight the IMF’s strong influence on Pakistan’s fiscal policy. While they may help reduce the fiscal deficit, they could also increase costs for consumers and businesses at a time when inflation and living expenses are already high.
