IMF asks Pakistan to raise GST to 19% in Budget 2026-27

• Estimated impact of GST hike could be Rs250-300bn revenue.
• IMF proposes increase due to shortfall in tax collection target.
• IMF cites weak tax performance as reason for higher GST demand.

ISLAMABAD: Ahead of the 2026-27 federal budget, the International Monetary Fund (IMF) has asked Pakistan to increase the standard General Sales Tax (GST) rate by one percentage point, from 18% to 19%.

However, Pakistani authorities have so far resisted it tooth and nail, arguing that it would further hike inflationary pressure, The News reported.

According to rough estimates, if the IMF convinces the budget makers, the GST will have a revenue impact of Rs250 to Rs300 billion.

The IMF has proposed raising the GST rate by 1% after witnessing a shortfall in the revised tax collection target for the outgoing fiscal year. The FBR might go close to the Rs13 trillion mark, but at the moment, it seems hard that the tax machinery would achieve the target.

Keeping in view this dismal performance, the IMF has sought an increase in the GST rate by 1%.

“There are rough estimates that 1%  hike in the GST rate will have a revenue impact of Rs250-300 billion,” top official sources said, and added that the IMF had projected an upward revision in the CPI-based inflation ranging around 8.4% on average in the coming financial year.

The IMF mission failed to present innovative ideas to expand the narrow tax base and had exhausted all options, so it came up with this new proposal to raise the GST rate, which was so far resisted by the Pakistani authorities, said sources.

The IMF also asked Pakistan to raise GST from 8.5% to the standard rate of 18% for hybrid vehicles in the upcoming budget, as its existing policy was going to expire in 2026. On Electric Vehicles (EV), discussions were continuing between the two sides.

The IMF has endorsed a fixed scheme for retailers in the coming budget whereby retailers having turnover up to Rs200 million will have to pay a fixed tax of Rs25,000, and they will be exempted from audit. If the FBR finds out any major discrepancy in income or assets, then the FBR will go for an audit, but it will also take the retailers’ representatives into confidence.

The FBR’s QR code certificate will be handed over to retailers. For the salaried class, the government is negotiating with the IMF team for granting some relaxations, but so far, the Fund is asking for alternative revenue measures to bridge this gap.

The IMF may grant its assent for a reduction in the rate of Super Tax by 1.5% to 2% in the coming budget for fiscal year 2026-27.

Overall, tough negotiations are underway with the IMF, which will continue even after the presentation of the budget in parliament. There will be last-minute changes in the presented budget and approved budget for 2026-27 from parliament.

When contacted, Chairman FBR Rashid Mahmood Langrial denied it and said that no such proposal was under consideration.