IMF Targets Rs14.3T Tax, NFC Rebalance for 2025

Pakistan is locked in crucial budget negotiations with the International Monetary Fund, with the global lender intensifying focus on revenue-enhancing tax measures and a controversial rebalancing of the National Finance Commission award, as revealed by officials on May 16, 2025. The IMF mission, led by Nathan Porter, is pushing for a Rs14.3 trillion tax collection target for FY2025-26, an ambitious Rs430 billion increase, with in-person talks set for Islamabad next week, ending May 23.

Finance Minister Muhammad Aurangzeb was briefed on key concerns, including reworking the National Finance Commission distribution without constitutional changes, cutting government size, and accelerating privatisation, per the Prime Minister’s Office. The Federal Board of Revenue proposed raising the income tax exemption threshold from Rs600,000 to Rs1.2 million and new slabs (10%, 25%, 33%, 35%), but the International Monetary Fund rejected this, warning of a revenue shortfall, citing salaried class tax payments of Rs437 billion (July–April FY2025), up Rs150 billion from last year. The Laffer Curve argument for lower rates was dismissed by International Monetary Fund experts, who questioned Federal Board of Revenue’s analytical capacity.

Other flashpoints include a 0.5% withholding tax cut on real estate (with adjustable rates), unresolved sales tax cuts on packaged milk (from 18%), a dropped excise duty on biscuits, and gradual withdrawal of tax exemptions in former Federally Administered Tribal Areas (considering 18% or 10% sales tax). The International Monetary Fund also seeks provincial contributions to defense spending, risking constitutional challenges and centre-province tensions. Web context from The Express Tribune notes past negotiation hurdles, while posts found on X reflect public frustration over salaried class burdens. Critically, the narrative of “fiscal discipline” may mask political risks—web sources highlight regional tensions, and X sentiment questions International Monetary Fund influence, suggesting a delicate balance ahead.