Monitoring Desk
ISLAMABAD: The International Monetary Fund (IMF) has not yet taken a position on Pakistan’s request for tax relief measures in the upcoming federal budget, as discussions between the two sides continue ahead of the June 2 budget announcement.
According to official sources, the IMF is seeking concrete and effective steps to expand the tax base—particularly through improved retail sector taxation and enforcement of agriculture income tax—before considering any concessions.
One of the key proposals under discussion is a 2.5% average reduction in income tax rates across all salaried income brackets. However, approval of this relief is contingent on the IMF being satisfied with the government’s ability to meet the programme’s primary budget surplus target of 1.6% of GDP, or roughly Rs2.1 trillion.
Sources said that the IMF’s final stance on the relief measures will depend on its review of the government’s updated revenue and expenditure framework, which was shared recently. This review includes fiscal projections aligned with the first biannual programme assessment conducted a few weeks ago.
PSDP Cuts, New Levies on Petroleum Expected
To manage any potential shortfall in revenue, the government has committed to reducing allocations under the Public Sector Development Programme (PSDP). Additionally, the budget is expected to include an increase in the petroleum levy and the introduction of a carbon levy on petroleum and other energy products.
Officials confirmed that these adjustments are part of efforts to ensure overall fiscal discipline while still attempting to provide limited relief to the salaried class.
Uncertainty Over Real Estate and Retail Tax Proposals
Despite public speculation, the IMF has neither accepted nor rejected the government’s proposed relief measures, and discussions on tax reforms for the real estate sector are yet to take place formally.
Meanwhile, the government’s recently introduced “Tajir Dost” scheme aimed at improving tax compliance among retailers has failed to deliver the expected results. The initiative is likely to be replaced by a new strategy, as the IMF continues to press for more effective mechanisms for retail sector taxation.
Focus on Provincial Contributions and Legal Disputes
The IMF has also urged the federal government to encourage provinces to curb expenditures and enhance their revenue contributions, particularly through the implementation of agriculture income tax. Enforcement of this tax is expected to begin in earnest from September 2025.
To bridge the fiscal gap further, authorities plan to pursue the resolution of long-standing legal disputes over tax liabilities. The IMF has acknowledged Pakistan’s commitment to recovering a portion of the Rs770 billion currently under litigation, including Rs43 billion in the Supreme Court, Rs217 billion across various high courts, and Rs104 billion pending before the Appellate Tribunal Inland Revenue.
A favorable ruling from the Supreme Court could help unlock an estimated Rs120 billion in tax revenues, potentially reducing the pressure on development spending.
