IMF seeks 1pc increase in GST rate ahead of Budget 2026-27

ISLAMABAD: The International Monetary Fund has asked Pakistan to raise the standard General Sales Tax rate from 18 per cent to 19 per cent in the federal budget for 2026-27, according to a report carried by Geo National, which said Pakistani authorities have so far opposed the proposal on the grounds that it would add to inflationary pressure.

The IMF put forward the proposal after assessing a shortfall against the revised tax collection target for the outgoing fiscal year. The Federal Board of Revenue may come close to Rs13 trillion, but meeting the target still appears difficult. In that context, the Fund has sought a 1 percentage point increase in GST.

The potential revenue gain from such a move has been estimated at Rs250 billion to Rs300 billion. The IMF has projected average CPI-based inflation of around 8.4 per cent in the next financial year.

Pakistani officials believe the IMF has not produced new options to broaden the tax base and has instead fallen back on a GST increase, a step they have resisted so far.

Other tax proposals under discussion

The IMF has also asked Pakistan to increase GST on hybrid vehicles from 8.5 per cent to the standard 18 per cent rate in the upcoming budget, as the current policy is due to expire in 2026. Discussions on taxation for electric vehicles are still continuing between both sides, it added.

For retailers, the IMF has backed a fixed tax scheme under which businesses with turnover of up to Rs200 million would pay Rs25,000 and be exempt from audit. However, if the FBR detects a major discrepancy in income or assets, it would initiate an audit while also taking retailers’ representatives into confidence.

Retailers would be issued the FBR’s QR code certificate. The government is trying to secure some relief for salaried taxpayers in talks with the IMF, but the Fund is asking for alternative revenue measures to offset any reduction in tax receipts.

The IMF may agree to a cut of 1.5 per cent to 2 per cent in the Super Tax rate in the budget for fiscal year 2026-27.

Negotiations continue

the ongoing talks with the IMF as difficult and said they are expected to continue even after the budget is presented in parliament. Changes could still be made between the budget’s presentation and its eventual approval.

When contacted by the outlet, FBR Chairman Rashid Mahmood Langrial rejected the report that such a GST proposal was being considered and said no such proposal was under discussion.