ISLAMABAD: The International Monetary Fund (IMF) has reportedly proposed increasing Pakistan’s standard General Sales Tax (GST) rate from 18 percent to 19 percent in the upcoming Federal Budget 2026-27 as part of efforts to enhance revenue collection and strengthen fiscal stability.
According to sources, the proposal would raise the GST rate by 100 basis points, potentially generating an additional Rs. 250 billion to Rs. 300 billion in annual tax revenue for the government.
However, the Revenue Division has strongly opposed the suggested increase, arguing that further reliance on indirect taxation could fuel inflation and place an additional financial burden on consumers already facing rising living costs.
The proposal comes as the Federal Board of Revenue (FBR) continues efforts to achieve its ambitious revenue targets. While tax collection is expected to approach Rs. 13 trillion, officials remain uncertain about meeting the full revenue goal for the current fiscal year.
IMF Recommends Changes to Hybrid Vehicle Tax Incentives
In addition to the proposed GST hike, the IMF has recommended ending the concessional tax treatment currently available to hybrid vehicles.
Under the proposal, the GST rate on hybrid vehicles would increase from 8.5 percent to the standard 18 percent, following the expiration of the existing incentive regime in 2026.
The move is aimed at broadening the tax base and reducing preferential tax exemptions that affect revenue generation.
Simplified Tax Scheme Proposed for Small Retailers
The IMF has also supported the introduction of a simplified taxation framework for small retailers with annual turnover of up to Rs. 200 million.
Under the proposed scheme:
- Eligible retailers would pay a fixed annual tax of Rs. 25,000.
- Participants would be exempt from routine tax audits.
- Retailers would receive FBR-issued QR code certification to promote documentation and compliance.
The initiative is intended to encourage tax registration and simplify compliance requirements for small businesses.
Focus on Alternative Revenue Measures
Sources indicate that the IMF has further urged Pakistan to explore alternative revenue-generating measures, particularly to address weaknesses and gaps within the existing taxation framework for salaried individuals.
Discussions between Pakistani authorities and the IMF are ongoing, and officials suggest that last-minute changes to tax proposals may still be incorporated before the federal budget receives final approval.
The upcoming Budget 2026-27 is expected to include several significant tax policy decisions as the government balances revenue generation, economic growth, and inflation concerns.
