The International Monetary Fund (IMF) has been critical of Pakistan’s plan to provide tax relief to the salaried class in the budget for fiscal year 2025-26. The suggestion was made during the ongoing talks between the IMF and Pakistan’s economic team.
Pakistan’s FBR had recommended increasing the annual tax exemption limit from Rs600,000 to Rs1.2 million and introducing tax slabs of 10%, 20%, 33%, and 35% to extend some relief to salaried persons. However, the IMF rejected this proposal, arguing that under-raking of revenue was the key concern and that Pakistan should adhere to experts’ advice rather than playing to the gallery.
The IMF stressed that relaxations extended to the salaried class could widen the budget deficit at a time when the country is trying to meet its tax collection target of Rs. 14.3 trillion. The IMF had also rejected another FBR suggestion to ease the tax burden on property purchases and sales, advising that the 0.5% withholding tax be retained as an adjustable tax.
Other non-government budget-related decisions included a proposal to cut VAT on packaged milk from 18% to 15–17%, but no decision has been taken yet. A suggestion to levy central excise on biscuits could not garner support.
Pakistan’s IMF 112 series’ mission chief, Nathan Porter, has outlined four priority actions for Pakistan: meeting a tax target, reforming fiscal federalism, reducing the size of the government, and privatizing. The IMF consistently urges such changes to contribute to economic sustainability over time.
The government is also weighing and discussing the issue of revoking the tax-free status of the former FATA, so that they can contribute taxes on par with other citizens. The IMF team, which is conducting the negotiations with Islamabad remotely from Turkey, is scheduled to arrive in the capital for the final round of talks next week. The budget must be finalised by May 23.
To Pakistan, as it prepares its FY26 budget, the IMF’s position serves as a reminder that economic reforms must strike a balance between relief and sustainability. As the salary earner anticipates some relief, there appears to be a tightening of the fiscal noose.
