ISLAMABAD: The International Monetary Fund (IMF) has raised objections to Pakistan’s proposal for tax relief for the salaried class, questioning the revenue implications of lowering tax rates for individuals earning between Rs200,000 and Rs400,000 per month.
As part of the preparations for the federal budget 2025–26, to be announced on June 2, the Government of Pakistan has proposed a set of tax rationalization measures targeting the salaried class, as well as the tobacco and beverage sectors. However, the IMF has expressed concern that reducing tax rates for the middle-income group could reduce potential revenue at a time when additional fiscal space is urgently needed.
To meet its fiscal targets under the ongoing economic program, Pakistan is negotiating with the IMF to raise an additional Rs700 billion in tax revenues. These discussions are part of broader efforts to finalize the revenue framework for the next fiscal year.
In the tobacco sector, the government is considering raising the Minimum Legal Price (MLP) for a cigarette pack, which currently stands at Rs162.25. Over 80% of brands are reportedly being sold at or near this threshold. The proposal under review would increase the MLP while keeping the existing two-tiered Federal Excise Duty (FED) structure unchanged.
A key policy meeting of the Annual Plan Coordination Committee (APCC) is scheduled for May 26 to finalize macroeconomic projections and development spending proposals for recommendation to the National Economic Council (NEC).
Meanwhile, the Ministry of Finance and the Federal Board of Revenue (FBR) have set an ambitious revenue target of Rs14.307 trillion for FY 2025–26.
However, the IMF disputes this projection, estimating that FBR will realistically collect no more than Rs13.200 trillion. The divergence in nominal GDP growth assumptions between the two sides has resulted in a Rs300 billion gap in projected revenues.
The government estimates Rs13.556 trillion in revenue based on its own growth forecasts. If both sides agree on this baseline, Pakistan would still need to generate Rs700 billion through new tax measures and improved enforcement.
One enforcement measure under consideration is tighter monitoring of advance tax collection on green leaf threshing (GLT) in the unprocessed tobacco sector – an area seen as a potential source of untapped revenue.
The final shape of these proposals is expected to emerge over the coming weeks as budget negotiations with the IMF continue.
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