Pakistan is working on plans to get an additional 700 billion rupees in taxes for the next financial year 2025-26. Prime Minister Shehbaz Sharif requested the IMF to review tax reforms, including changes for salaried workers, tobacco, and beverages.
However, the International Monetary Fund (IMF) has raised objections to lowering tax rates for middle-income earners earning between 200,000 to 400,000 rupees monthly. The IMF wants to understand how much extra revenue these reductions might generate since they are concerned about the budget’s overall income goals.
A meeting of the Annual Planning & Development Committee will be held on May 26 to discuss these plans. The government aims to raise about 14,307 billion rupees from taxes, but due to disagreements with the IMF, there’s a gap of around 300 billion rupees. The government estimates that, mainly through growth, they can collect around 13,556 billion rupees, but the IMF believes it may be less.
IMF CRACKS DOWN ON REAL ESTATE TAX EVADERS
One key issue is tobacco prices. The minimum legal price of a cigarette pack is currently 162.25 rupees, and there might be an increase to reduce illegal sales and improve health. This can be done without changing existing taxes or excise duties, but the government and IMF are still discussing how to set the new prices.
Another challenge is the collection of taxes. The government has set a target of 14,307 billion rupees in revenue, but the IMF warns that the Federal Revenue Service (FBR) might only collect about 13,200 billion rupees, which creates the 300-billion rupee gap. To bridge this gap, efforts are underway to improve enforcement, including monitoring unpaid taxes on untaxed or illegal cigarettes, which are causing significant losses.
The government also considers increasing the minimum legal price of cigarettes to curb illegal sales and reduce health risks. Despite these efforts, illegal and untaxed cigarette sales undermine legal companies, shrinking their market share and costing the government roughly 300 billion rupees annually in lost tax revenue.
In summary, Pakistan faces several revenue and tax reform challenges ahead of the upcoming budget. Balancing tax reductions with revenue targets and fighting illegal trade are urgent priorities to ensure financial stability.
