IMF GST increase Pakistan proposal calls for a 100 basis point hike to 19 percent as Revenue Division warns of deeper inflation pressure on citizens
The IMF wants Pakistan to raise its sales tax. The fund proposed increasing the standard General Sales Tax rate by 100 basis points to 19 percent in the upcoming federal budget for 2026-27. The IMF GST increase Pakistan recommendation could generate an additional Rs. 250 to 300 billion in revenue. However, the Revenue Division is strongly opposing the move. Officials warn that higher indirect taxation would intensify inflation on ordinary citizens who are already under serious financial pressure.
The Federal Board of Revenue is expected to approach the Rs. 13 trillion collection mark this year. Still, hitting the full target remains uncertain. Furthermore, adding another layer of indirect taxation through a GST hike could slow consumption and complicate the revenue picture rather than simplify it. Therefore, the internal resistance from Pakistan’s own tax authorities carries real weight in this debate.
The IMF’s tax proposals go beyond the GST hike. The fund also recommended ending concessional tax treatment for hybrid vehicles. Currently, hybrids attract a reduced GST of 8.5 percent. The IMF wants that raised to the standard 18 percent, noting that the incentive regime expires in 2026. Furthermore, for small retailers, the fund backed a simplified fixed-tax scheme for businesses with annual turnover up to Rs. 200 million. Under this scheme, eligible retailers would pay Rs. 25,000 and receive exemption from routine audits. Additionally, FBR-issued QR code certification would accompany the arrangement.
The IMF also urged Pakistan to explore alternative revenue measures to address gaps in the salaried class tax structure. Therefore, salaried workers could face additional scrutiny or adjustments in the final budget. Last-minute changes remain possible before the budget receives final approval. Finally, the outcome of the GST debate will signal how much fiscal flexibility Pakistan retains under its current IMF programme commitments.
