Government seeks IMF approval for tax relief in budget 2026-27

The federal government is awaiting the approval of the International Monetary Fund (IMF) on a range of proposed tax relief measures before giving final shape to the Budget 2026-27

ISLAMABAD: The federal government is awaiting the approval of the International Monetary Fund (IMF) on a range of proposed tax relief measures before giving final shape to the Budget 2026-27, as negotiations with the global lender enter a crucial phase ahead of the budget announcement.

According to official sources, the government has completed much of the groundwork for the upcoming fiscal plan, but several key proposals aimed at providing relief to taxpayers and stimulating economic activity remain subject to IMF consent. The discussions are part of broader consultations focused on ensuring fiscal discipline while supporting economic growth.

Officials familiar with the budget-making process said Islamabad has shared multiple tax reform and relief proposals with the IMF, seeking flexibility in areas that directly affect businesses, exporters, salaried individuals and investors.

One of the most significant proposals under consideration is a reduction in income tax rates for salaried employees. The government is reportedly seeking to revise tax slabs to ease the burden on middle-income earners who have faced rising inflation and increasing living costs over the past several years.

In addition, authorities have proposed a two-percentage-point reduction in the super tax, a levy imposed on higher-income individuals and corporate entities. Policymakers believe that lowering the super tax could improve business confidence and encourage investment across various sectors of the economy.

The government has also recommended the withdrawal of the one per cent advance income tax currently charged on exports. Officials argue that eliminating the levy would improve liquidity for exporters and enhance the competitiveness of Pakistani products in international markets at a time when export growth remains a key economic objective.

Relief for Property and Construction Sectors

Sources said the government is considering several incentives for the property and construction sectors as part of efforts to revive investment and generate economic activity. The proposed measures may include tax concessions and procedural relaxations designed to attract both domestic and overseas investment into real estate and infrastructure development.

Economic managers view the property sector as a potential driver of employment and allied industries, making it a key focus area in the upcoming budget.

IMF Reviewing GST Proposals

While relief measures are being discussed, the government is also evaluating options to increase taxes on selected products to strengthen revenue collection and meet fiscal targets.

According to sources, negotiations with the IMF are continuing over a proposal to raise the General Sales Tax (GST) on solar panels, hybrid vehicles and more than 20 other categories of goods to the standard rate of 18 per cent.

The proposed move is aimed at broadening the tax base and reducing preferential tax treatments. However, officials acknowledge that higher taxes on certain products could increase costs for consumers and businesses.

At the same time, the government is seeking IMF approval to maintain reduced tax rates on electric vehicles (EVs), arguing that incentives for clean transportation are essential to achieving environmental and energy security objectives.

Officials noted that support for electric vehicles is linked to Pakistan’s commitments under the $1.4 billion Resilience and Sustainability Facility (RSF) programme, which focuses on climate resilience, sustainable growth and reducing dependence on imported fossil fuels.

Revenue Targets Remain Key Challenge

Fiscal authorities are also grappling with the challenge of setting ambitious revenue collection targets for the next financial year.

Sources said the Federal Board of Revenue (FBR) has revised its revenue target for the current fiscal year downward to Rs13.428 trillion after assessing collection trends and economic conditions. For the upcoming fiscal year, however, policymakers are considering a significantly higher target of Rs15.264 trillion.

Achieving such a target is expected to require a combination of improved tax administration, enhanced compliance measures and policy adjustments aimed at expanding the tax net.

Officials said discussions with the IMF are focused not only on tax rates and relief measures but also on broader fiscal reforms intended to ensure sustainable revenue growth while maintaining macroeconomic stability.

Budget Hinges on Final IMF Agreement

With the federal budget expected to be presented in the coming days, government officials remain engaged in intensive consultations with the IMF to secure agreement on key policy measures. The outcome of these talks will play a decisive role in determining the extent of tax relief available to citizens and businesses, as well as the government’s ability to balance economic growth objectives with fiscal responsibility.