IMF Reviews Pakistan’s Tax Relief, Budget Talks Ongoing

The International Monetary Fund (IMF) has yet to finalize its stance on Pakistan’s request for tax relief measures in the 2025-26 budget, set for June 2, as tense negotiations continue over agriculture income tax implementation and retail sector taxation reforms. Dawn reports that the government has vowed to offset any revenue shortfall by slashing expenditures under the Public Sector Development Programme (PSDP), while introducing increases in petroleum levies and a new carbon levy on petroleum and energy products to bolster funds.

To bridge revenue gaps, the government will withhold PSDP disbursements and expects additional tax collection from resolving ongoing litigation cases, with the IMF noting Rs367 billion in disputed cases out of Rs770 billion pending—Rs43 billion at the Supreme Court, Rs217 billion in high courts, and Rs104 billion in the Appellate Tribunal Inland Revenue. A favorable Supreme Court ruling could unlock Rs120 billion, the IMF highlighted. Pakistani officials from the Ministry of Finance and Federal Board of Revenue (FBR) have been negotiating with the IMF mission since mid-May, proposing a 2.5% average cut in income tax rates for salaried brackets, contingent on meeting the IMF’s 1.6% primary budget surplus target—around Rs2.1 trillion.

Budget targets remain under negotiation, with datasheets and projections shared during the IMF’s recent biannual review, and responses to IMF queries being compiled for analysis. The IMF has neither accepted nor rejected the relief measures, and real estate tax discussions are pending. The Tajir Dost scheme for retailers has failed to deliver, likely to be replaced by a stronger mechanism, while the IMF pushes for reduced provincial expenditures and increased provincial revenue under the national fiscal pact.

Web context shows the IMF’s stringent oversight on Pakistan’s fiscal policies, with past agreements emphasizing tax base expansion (e.g., agriculture income tax by January 2025, web ID: 0). Posts found on X reflect skepticism—some question the feasibility of revenue targets amid proposed relief, while others criticize IMF conditions as inflationary (e.g., tax hikes, petroleum levy increases, post ID: 5). Critically, the narrative of “fiscal discipline” may mask economic strain—the PSDP cuts could stall development, and provincial resistance to expenditure reductions, as seen in prior overspending (web ID: 22), suggests implementation risks.