Pakistan will start the 2026-27 federal budget’s negotiations with the International Monetary Fund next week. The federal government seeks reductions in income tax rates for salaried workers, particularly middle income earners, alongside tiny cuts in corporate taxes. However, the next IMF budget expected to hit salaried Pakistanis harder than ever despite these requests. The government also wants to abolish the super tax and withdraw the capital value tax. All these efforts will fail without IMF approval.

Power subsidies will remain capped at around Rs 890 billion. The IMF may even demand their complete removal. An IMF mission will arrive in Islamabad on Tuesday for talks focused on roughly Rs 230 billion in new tax revenue measures. These measures must meet the lender’s neck breaking conditions.

Politicians will present a new taxation framework for traders under the plan. Businesses could face income tax equal to 1 percent of annual turnover under the scheme. This likely applies to traders with annual sales up to around Rs 300 million.

Salaried Class Braces for Another Tough Year

The IMF wants a tightly controlled budget. Pakistan has committed to fulfilling any tax relief for salaried individuals or companies through higher taxes elsewhere. Higher taxes in other areas will maintain overall revenue targets. Consequently, the next IMF budget expected to hit salaried Pakistanis who will see little net benefit from proposed rate reductions.

The upcoming budget will target total tax collection of about Rs 15.3 trillion. Under IMF benchmarks, Pakistan must limit the overall fiscal deficit to roughly 3.5 percent of GDP. The country must also generate a primary budget surplus of Rs 2.8 trillion. A mini budget could become necessary later in the fiscal year if revenue targets fall short.

The IMF has also imposed strict expenditure controls on the government. Growth in current government spending cannot exceed projected inflation of about 8.4 percent. Separately, tax experts have proposed major structural changes. These include a simplified tax system for salaried individuals and stricter rules allowing authorities to tax previously undeclared assets when discovered rather than when acquired.