The International Monetary Fund (IMF) has reportedly asked Pakistan to increase the standard General Sales Tax (GST) rate from 18% to 19% in the upcoming federal budget for 2026-27. The proposal comes ahead of key budget negotiations, as Pakistan continues discussions with the IMF over fiscal reforms and revenue generation measures.
According to reports, Pakistani authorities have strongly resisted the suggestion, arguing that any further increase in GST would add additional pressure on inflation, which is already a major concern for households and businesses. Officials believe that raising indirect taxes could further increase the cost of living and slow down economic recovery.
Estimates suggest that if the GST rate is increased by 1%, it could generate an additional Rs250 to Rs300 billion in revenue for the government. The IMF’s recommendation reportedly follows concerns over a shortfall in tax collection targets for the outgoing fiscal year, where the Federal Board of Revenue (FBR) is expected to fall short of its revised goals despite approaching the Rs13 trillion mark.
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The IMF has also proposed increasing GST on hybrid vehicles from 8.5% to the standard rate of 18% after the expiry of existing incentives in 2026. Discussions are still ongoing regarding tax policy for electric vehicles (EVs), which remain part of broader climate and energy transition plans.
In addition, the IMF has suggested introducing a fixed tax scheme for retailers. Under this proposal, small retailers with turnover up to Rs200 million would pay a fixed tax of Rs25,000 annually and be exempt from routine audits. However, audits could still be conducted in cases of major discrepancies, with consultation from retailer representatives.
The proposal reflects ongoing tensions between revenue generation targets and inflation control. While the IMF emphasizes broadening the tax base and improving fiscal discipline, Pakistani authorities are trying to balance economic stability with public relief ahead of the new budget.
