Pakistan, IMF agree on PKR1 trillion tax measures for FY27 budget

Pakistan and the International Monetary Fund have concluded negotiations on the federal budget framework for fiscal year 2026-27, agreeing on broad tax and fiscal measures worth PKR1.03 trillion at the federal and provincial levels, finance ministry sources said Wednesday.

The IMF mission has since departed for Washington after completing discussions with Pakistani authorities on the budget framework and revenue measures tied to the country’s ongoing IMF program.

Under the agreement, the federal government has committed to introducing tax measures worth PKR 370 billion, including about PKR 230 billion in new taxes in the upcoming budget, the sources said.

Provincial governments have separately pledged additional tax and revenue measures totaling PKR 430 billion in the next fiscal year.

Officials said most outstanding issues between Pakistan and the IMF have been resolved, although some matters still require additional data sharing before final approval of the budget framework.

The IMF has also proposed increasing the sales tax on solar panels from 10% to 18% beginning July 1, according to the sources. It has further recommended raising the sales tax on electric vehicles from 1% to 18% at the start of the new fiscal year.

Sources said the IMF wants provincial governments to generate an additional PKR 430 billion in revenue and deliver nearly PKR 2 trillion in budget surpluses to support federal fiscal consolidation efforts.

The Federal Board of Revenue has been assigned a tax collection target of PKR 15.264 trillion for the next fiscal year, with a first-half target ending December 2026 set at PKR 7.022 trillion.

Authorities are also planning to raise an additional PKR 95 billion through tax audits in the coming fiscal year, while an estimated PKR50 billion in recoveries is expected from the sugar, cement, tobacco and fertilizer sectors.

According to the sources, the IMF has retained its requirement that Pakistan review gas and electricity tariffs twice annually under the reform program.

The Fund has also recommended against granting new tax exemptions for special economic zones, while seeking a gradual withdrawal of incentives for special economic and technology zones by 2035.

In the energy sector, the IMF has reportedly sought an increase in the petroleum levy target for the next fiscal year, aiming to raise an additional PKR 262 billion in FY27.

The petroleum levy target on petroleum products for the current fiscal year stood at PKR 1.468 trillion, while the IMF is seeking to increase it to PKR 1.73 trillion for the next fiscal year.

The IMF has also proposed increasing the climate support levy on petroleum products from PKR 2.5 per litre to PKR 5 per litre, according to the sources.