Pakistan, IMF Consider Additional Rs700 Billion in Taxes for FY 2025-26 Budget

Islamabad:The Government of Pakistan and the International Monetary Fund (IMF) have begun deliberations on introducing additional taxation measures worth Rs700 billion in the upcoming federal budget for the fiscal year 2025-26, as part of efforts to meet revenue targets and strengthen fiscal discipline.

The discussions focus on tax reforms and enhanced enforcement strategies to bridge the revenue gap. The government has already proposed rationalizing taxes on salaried individuals, tobacco products, and beverages, while the IMF has raised concerns over potential revenue losses from proposed tax cuts for the middle-income salaried class earning between Rs200,000 and Rs400,000 per month.

### Key Areas of Focus

* **Tobacco Industry:**
A major proposal under consideration is raising the *Minimum Legal Price (MLP)* for cigarette packs, currently set at Rs162.25, without altering the existing two-tier excise duty structure. Over 80% of cigarette brands are currently being sold at or below the MLP, contributing to tax evasion and public health risks. Authorities are also weighing the imposition of advance tax at the Green Leaf Threshing (GLT) stage to curb the flow of untaxed tobacco.

* **Salaried Class & Beverage Sector:**
The IMF has opposed tax relief for salaried individuals and has sought justification for the projected revenue increase. Discussions are ongoing regarding the beverage sector as well, with the IMF concerned about potential tax refunds that could burden the Federal Board of Revenue (FBR), which is reluctant to allow such outcomes.

### Revenue Targets and Discrepancies

For FY 2025-26, the Ministry of Finance and the FBR have set a revenue collection target of Rs14,307 billion. However, discrepancies in nominal GDP growth estimates have led to a Rs300 billion gap between IMF and government projections. The government expects Rs13,556 billion in base revenue, while the IMF estimates Rs13,200 billion. Bridging this gap would require Pakistan to introduce Rs700 billion in additional taxation or enforcement measures.

### Broader Fiscal Context

The Annual Plan Coordination Committee (APCC) is scheduled to meet on May 26 to finalize the macroeconomic framework and propose development allocations to the National Economic Council (NEC). Meanwhile, the IMF team, currently in virtual sessions with federal and provincial officials, is also reviewing public expenditure, particularly in Balochistan.

Despite fiscal pressures, the State Bank of Pakistan reported a current account surplus of \$17 million for April, signaling cautious economic stability.

### Health and Smuggling Concerns

The prevalence of illicit cigarette brands—often sold below legal prices—has eroded the government’s tobacco tax revenue, estimated at Rs300 billion annually. From a public health perspective, cheap and easily available cigarettes contribute to over 100,000 tobacco-related deaths each year in Pakistan. Youth smoking rates remain alarming, despite enforcement tools like track-and-trace systems (TTS) and graphic health warnings (GHWs), which suffer from weak implementation.

As the budget announcement date of June 2 approaches, all eyes remain on how Pakistan will reconcile fiscal consolidation with social and political considerations, while meeting IMF benchmarks critical for economic support.