IMF may set ambitious PKR 15 trillion tax target for Pakistan's next fiscal year

The International Monetary Fund (IMF) may ask Pakistan government to set a tax collection target of approximately PKR 15 trillion for the new fiscal year, starting July 1, 2025.

This is one of the key conditions for the approval of the second tranche of the IMF loan.

The government and the IMF are currently holding virtual discussions to secure approval for a $1 billion loan, part of the $7 billion package approved last year.

The talks have primarily focused on new taxation measures, strategies to improve the economy, and steps to expand the tax net and enhance documentation, sources said.

During the talks, the government is expected to receive guidance on raising the tax-to-GDP ratio to 13% and boosting revenue collection to PKR 15 trillion. Earlier, the government requested a review of the revenue collection target for the current fiscal year, revising it upward by PKR 620 billion to PKR 12.35 trillion, while aiming to maintain the tax-to-GDP ratio at 10.6%.

The Federal Board of Revenue (FBR) faced a revenue shortfall of PKR 600 billion in the first eight months of the current fiscal year. The remaining four months (March to June) will see monthly adjustments to account for the shortfall.

Separately, the IMF has made it mandatory for the Finance Ministry to proportionally adjust expenditures to achieve a primary surplus of PKR 2.4 trillion for the current fiscal year, given the revision in the annual tax collection target.

Additionally, the IMF is discussing non-tax revenue, aiming to increase it to PKR 2.745 trillion in the next fiscal year. The IMF has also proposed setting an economic growth target of 4% for fiscal year 2026.

In a statement on March 14, the IMF noted that program implementation has been robust. The discussions have made significant progress in areas including planned fiscal consolidation to reduce public debt, maintaining tight monetary policy to curb inflation, accelerating energy sector reforms, and implementing structural reforms to boost growth. The IMF also emphasized the need to strengthen social protection and rebuild health and education spending.

“Progress has also been made in discussions on the authorities’ climate reform agenda, which aims to reduce vulnerabilities from natural disaster-related risks and accompanying reforms that could be supported under a possible arrangement under the Resilience and Sustainability Facility (RSF),” the statement said.