IMF Relief Measures for Pakistan Budget 2025 Still Under Review

Amid ongoing negotiations, officials concerned have not yet approved IMF relief measures for Pakistan budget 2025, as discussions with the government continue over proposed tax reforms and fiscal targets.

Reports reveal that the officials concerned have yet to take a final stance on IMF relief measures for Pakistan budget 2025, especially regarding the government’s request for concessions in the upcoming federal budget scheduled for June 2. Instead, Pakistani authorities have pledged to counter any revenue shortfalls by cutting spending in the Public Sector Development Programme (PSDP).

To meet revenue goals, the government plans to increase the petroleum levy and introduce a new carbon levy on petroleum and energy products. These steps are part of a broader strategy under discussion between the Finance Ministry, the Federal Board of Revenue (FBR), and IMF officials, who have been holding budget meetings since May 14 under the direction of Prime Minister Shehbaz Sharif.

Proposal for Average Reduction in Income Tax

One key relief proposal includes a 2.5% average reduction in income tax rates across all salaried slabs. However, approval of this proposal depends on whether the IMF is convinced it won’t undermine the agreed primary budget surplus of 1.6%, or roughly Rs2.1 trillion.

While datasheets and projections aligned with the proposed fiscal framework have been shared with the IMF, officials confirmed that the Fund is still analyzing this data through its internal software. No final decision has been made yet on the relief proposals, and contrary to some media reports, the IMF has neither endorsed nor rejected the suggested tax cuts.

Formal discussions on tax proposals concerning the real estate sector have not yet begun. Meanwhile, the government’s “Tajir Dost” retail tax initiative has failed to produce the desired outcomes and will likely be replaced with a more effective revenue generation strategy.

The IMF has also urged the government to curb provincial spending and enhance provincial tax collection to ensure fiscal stability. The Fund emphasized that provinces must begin effective enforcement of agriculture income tax by September 2025 as part of a broader national fiscal pact.

To address revenue gaps, the government plans to withhold PSDP disbursements and expedite the resolution of tax-related litigation. The IMF acknowledged Pakistan’s commitment to resolving legal disputes, which amount to Rs770 billion. Of this, Rs367 billion are in active litigation, including Rs43 billion in the Supreme Court, Rs217 billion in various high courts, and Rs104 billion before the Appellate Tribunal Inland Revenue.

A favorable Supreme Court ruling could potentially unlock around Rs120 billion, offering a substantial boost to tax revenue.