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As Pakistan prepares for the 2025–26 federal budget, the government is under mounting pressure from the International Monetary Fund (IMF) to introduce stringent tax measures aimed at collecting an additional Rs. 700 billion in revenues.
This hike is crucial to meet a hefty revenue target of Rs. 14.307 trillion, far above both the Finance Ministry’s estimate of Rs. 13,556 billion and the IMF’s own projection of Rs. 13,200 billion.
Salaried Class Unlikely to Get Relief
One of the most debated areas is the tax treatment of salaried individuals, particularly those earning between Rs. 0.2–0.4 million per month. The government had proposed a reduction in tax rates for this middle-income segment, but the IMF has objected, making any relief for this group unlikely in the final budget.
The government is also turning to the tobacco industry for additional revenue. Plans are underway to increase the Minimum Legal Price (MLP) of a cigarette pack, currently set at Rs. 162.25. Notably, over 80% of cigarette brands are sold at or just above this base price. However, the existing two-tier federal excise duty structure will remain unchanged.
To tighten enforcement, authorities are mulling stricter monitoring of advance tax payments at Green Leaf Threshing (GLT) facilities, which handle unprocessed tobacco. This move aims to plug tax leakages early in the supply chain.
In the beverages sector, the Federal Board of Revenue (FBR) is resisting proposals to cut tax rates. The primary concern is that such changes could lead to refund claims, something the FBR wants to avoid. The IMF has also raised questions about how such refunds would be managed, adding another layer of complexity.
The anticipated Rs. 700 billion boost will likely come not just from new taxes but also through stricter enforcement across various sectors. The government is exploring options that maximize revenue while minimizing the chances of backfire through refunds or evasion.
Key Decision on May 26
The Annual Plan Coordination Committee (APCC) is scheduled to convene on May 26, where it will finalize the macroeconomic and development frameworks for the upcoming fiscal year. The decisions made in this meeting will shape how the government balances growth, inflation, and revenue generation in the forthcoming budget.
With the budget deadline approaching and the IMF keeping a close watch, the government appears set on a challenging path to meet its revenue target. While sectors like tobacco and beverages will feel the immediate pressure, salaried individuals may bear the long-term brunt of limited tax relief and stricter enforcement.
