Government resists IMF proposal for GST increase as officials weigh revenue measures ahead of federal budget
Pakistan is unlikely to raise the General Sales Tax (GST) rate in the federal budget for 2026-27 despite a proposal from the International Monetary Fund (IMF), as authorities remain concerned about the inflationary impact of higher indirect taxes amid rising fuel costs, sources said.
The IMF has reportedly proposed increasing the standard GST rate by one percentage point, from 18% to 19%, during budget discussions for the next fiscal year. However, officials from the Ministry of Finance and the Federal Board of Revenue (FBR) have expressed reservations, arguing that such a move could trigger a fresh wave of inflation and further increase the cost of living for consumers.
According to estimates discussed during the talks, a one-percentage-point increase in GST could generate between Rs250 billion and Rs300 billion in additional revenue for the government.
The discussions come as Pakistan seeks to strengthen revenue collection while balancing economic growth and inflation concerns. Recent increases in petroleum prices have already added pressure on households and businesses, making policymakers cautious about introducing additional tax burdens.
Alongside the GST proposal, authorities are evaluating several tax measures targeting solar panels, electric vehicles (EVs), and hybrid vehicles as part of broader revenue-enhancement efforts.
Among the options under consideration are raising sales tax on hybrid vehicles from 8% to 18%, increasing the existing 1% tax on electric vehicles to 18%, and enhancing GST on solar panels from 10% to 18%.
If approved, these measures would likely increase the cost of clean-energy technologies and fuel-efficient vehicles, potentially affecting consumer demand and slowing adoption of renewable energy solutions.
Sources also said the IMF has endorsed a proposed fixed tax scheme for retailers. Under the plan, retailers with annual turnover of up to Rs200 million would pay a fixed tax of Rs25,000 and be exempt from routine tax audits.
The FBR continues to face challenges in meeting its annual revenue target. During the first eleven months of the current fiscal year, the tax authority collected Rs11.232 trillion. To achieve its annual collection goal by June 30, it would need to mobilize an additional Rs2.747 trillion during June alone.
Despite reports regarding tax increases, FBR officials have denied that any final decision has been taken on raising GST or imposing higher taxes on solar panels, electric vehicles, and hybrid vehicles.
Officials said all proposals remain under discussion and no budgetary measure has yet received final approval.
Sources further indicated that the IMF has projected Pakistan’s average inflation rate at 8.4% for the next fiscal year, underscoring concerns over policies that could add to price pressures.
Separately, negotiations between Pakistan and the IMF on the federal budget for 2026-27 have concluded, with both sides reportedly reaching an understanding on key fiscal objectives.
The upcoming federal budget is expected to have a total outlay of around Rs17.5 trillion. To strengthen revenues, the government is considering approximately Rs220 billion in new taxation measures.
At the same time, authorities are examining proposals to provide relief to salaried individuals through revised income tax slabs and adjustments to the threshold for the highest tax bracket.
According to sources, the fixed tax scheme for traders and proposed sales tax changes for hybrid and electric vehicles remain in the final stages of deliberation, while additional revenue measures are expected to form part of the government’s strategy to meet ambitious tax collection targets in fiscal year 2026-27.
