Pakistani authorities are locked in tense negotiations with the International Monetary Fund over a controversial demand to raise the country’s General Sales Tax from 18% to 19% in the upcoming 2026-27 federal budget—a move that could extract an additional Rs250 to Rs300 billion from consumers but risks fueling inflation that already weighs heavily on millions of households.
The IMF’s push comes as Pakistan’s Federal Board of Revenue struggles to meet its revised tax collection target of Rs13 trillion for the current fiscal year. With the tax machinery falling short, the Fund has proposed the one percentage point GST hike as a quick fix to shore up revenues, according to senior government officials familiar with the negotiations.
But Pakistani policymakers are pushing back hard. They argue that raising the sales tax—which hits every purchase from groceries to fuel—would pile more pressure on families already squeezed by the cost of living. The IMF itself projects inflation to average around 8.4% in the coming financial year, and officials warn that a GST increase could push prices even higher.
“The IMF has exhausted all options and failed to present innovative ideas to expand the tax base,” said sources close to the talks. “Now they’re asking us to burden ordinary citizens further instead of finding ways to bring more people into the tax net.”
The Fund is also demanding that Pakistan eliminate the concessional 8.5% GST rate on hybrid vehicles and impose the full 18% standard rate when the existing policy expires in 2026. Discussions on electric vehicles are still ongoing.
In a potential concession, the IMF has endorsed a simplified fixed-tax scheme for small retailers with annual turnover up to Rs200 million. Under the proposal, these businesses would pay just Rs25,000 in fixed tax and be exempt from audits unless major discrepancies emerge. The FBR would issue QR code certificates to participating retailers.
Meanwhile, the government is lobbying for tax relief for salaried workers, but the IMF is insisting on alternative revenue measures to compensate for any concessions. The Fund may, however, approve a reduction in the Super Tax rate by 1.5% to 2%.
FBR Chairman Rashid Mahmood Langrial publicly denied that any GST increase was under consideration, but sources say negotiations remain fluid and changes could be made even after the budget is presented to parliament.
The standoff highlights the difficult balancing act facing Pakistan’s economic managers: meet IMF demands to secure continued financial support, or shield citizens from further economic pain. With tough negotiations expected to continue beyond the budget presentation, the final shape of Pakistan’s tax policy for 2026-27 remains uncertain—but the stakes for ordinary Pakistanis couldn’t be higher.
