The International Monetary Fund (IMF) has urged Pakistan to raise the standard General Sales Tax (GST) rate from 18% to 19% in the FY2026-27 budget, according to sources familiar with the discussions.
Pakistani authorities are resisting the proposal, warning it could push up inflation and consumer prices.
A one-percentage-point increase could generate an additional revenue of PKR 250 billion to PKR 300 billion. The proposal also includes sharply higher taxes on electric vehicles, hybrid cars, and solar panels.
The proposal comes amid persistent revenue shortfalls and pressure to meet a tax target above PKR 15 trillion next fiscal year.
How will the GST hike affect prices in Pakistan?
Pakistani authorities oppose the GST hike, warning it could increase inflation.
A higher rate would make a wide range of consumer goods more expensive across the country.
The IMF projects average inflation in Pakistan at 8.4% in the next fiscal year. Higher GST could put further pressure on household budgets already squeezed by elevated fuel prices.
How will EVs, hybrids, and solar panels be taxed?
GST on electric vehicles could rise from 1% to 18% under the IMF proposal. Sales tax on hybrid vehicles may increase from 8% to 18%.
Electric cars, motorcycles, rickshaws, and buses could become significantly more expensive. Electric trucks, tractors, pickups, and double-cabin vehicles may also see sharp price hikes.
GST on solar panels may rise from 10% to 18%, potentially affecting adoption of alternative energy solutions. Ministry of Industries officials confirmed the proposals are under consideration.
Officials said no final decision has been made with discussion continuing with the IMF on the taxation of electric vehicles.
Why is the IMF pushing for a GST hike?
The IMF has linked the GST hike to persistent revenue shortfalls in Pakistan.
The Federal Board of Revenue (FBR) collected PKR 11.23 trillion in the first 11 months of FY26, PKR 860 billion short of its target. The authority would need PKR 2.75 trillion in June alone to meet its annual target.
Sources said the IMF turned to the GST hike after exhausting existing tax options. The Fund reportedly failed to present major new proposals to broaden the tax base.
What is the IMF's fixed tax scheme for retailers?
The IMF has endorsed a fixed tax scheme for small retailers. Retailers with annual turnover up to PKR 200 million may pay a fixed tax of PKR 25,000.
Small retailers under the fixed tax scheme may be exempt from audits. The measure aims to widen the tax base and bring more retailers into the formal system.
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