The International Monetary Fund (IMF) has proposed a one percentage point increase in the standard General Sales Tax (GST) rate, pushing it from 18% to 19% for the upcoming 2026-27 federal budget.
While initial estimates indicate that a 1% hike in the GST rate would generate between Rs250 billion and Rs300 billion in revenue, reports said Pakistani authorities are resisting the demand, arguing that increasing the standard rate will trigger inflation across the country.
Earlier, the IMF put forward the proposal following a shortfall in the revised tax collection target for the outgoing fiscal year. While the Federal Board of Revenue (FBR) may approach the Rs13 trillion mark, hitting the target remains difficult.
According to reports, the IMF projects Consumer Price Index (CPI) based inflation to average around 8.4% in the next financial year. Insiders claim the IMF mission failed to introduce new ideas to expand the tax base, resorting instead to raising the GST rate after exhausting other options.
However, FBR Chairman Rashid Mahmood Langrial denied the development, stating that “no such proposal was under consideration”.
Beyond the standard GST, the IMF wants Pakistan to raise the GST on hybrid vehicles from 8.5% to the standard 18% rate, as the current policy expires in 2026. Discussions regarding Electric Vehicles (EVs) remain ongoing.
For retailers, the IMF has endorsed a fixed tax scheme. Retailers with a turnover up to Rs200 million will pay a fixed tax of Rs25,000 and receive exemption from audits.
The FBR will issue QR code certificates to these retailers. Audits will only occur if major discrepancies appear in income or assets, and the FBR will consult retailers’ representatives before taking action.
Negotiations are also underway regarding the salaried class. The government is seeking relaxations from the IMF, though the global lender requires alternative revenue measures to bridge the financial gap.
Concurrently, the IMF may agree to reduce the Super Tax rate by 1.5% to 2% in the upcoming budget.
