Monitoring Desk
As Pakistan finalizes its federal budget ahead of the June 2 announcement, the International Monetary Fund (IMF) has yet to endorse the government’s proposed relief measures, including a cut in income tax rates for salaried individuals.
Officials familiar with the matter said talks between the IMF and Pakistani authorities, ongoing since May 14, remain inconclusive. The IMF is pressing for credible steps to broaden the tax base—particularly through the enforcement of agriculture income tax and reforms in retail sector taxation—before signing off on any concessions.
One key proposal under review is a 2.5% average reduction in income tax across all salaried brackets. However, IMF approval hinges on the government’s ability to meet the programme’s target of a 1.6% primary budget surplus, roughly equivalent to Rs2.1 trillion.
Datasheets and fiscal projections based on the updated budget framework have been shared with the IMF. Officials said the Fund is currently reviewing the data through its analytical tools, and has not yet accepted or rejected any relief proposals.
PSDP Cuts, Petroleum and Carbon Levies on the Cards
To manage potential revenue shortfalls, the government has pledged to curtail Public Sector Development Programme (PSDP) expenditures. Budget proposals also include raising the petroleum levy and introducing a carbon levy on petroleum products and other energy sources.
These steps are aimed at balancing fiscal space while attempting to provide targeted relief in the upcoming budget, officials noted.
Weak Retail Scheme May Be Replaced
The government’s “Tajir Dost” scheme, launched to formalize tax collection from retailers, has underperformed and is likely to be replaced with a more effective revenue mechanism. Formal discussions with the IMF on real estate taxation are still pending.
IMF Pushes for Provincial Fiscal Responsibility
The IMF is also urging provinces to curb expenditures and contribute more robustly to the national fiscal effort. A key recommendation includes effective implementation of agriculture income tax, set to begin in September 2025.
Additionally, the government aims to recover disputed tax revenues through legal settlements. Of the Rs770 billion currently under litigation, the IMF acknowledges the potential recovery of Rs367 billion. This includes Rs43 billion in Supreme Court cases, Rs217 billion in various high courts, and Rs104 billion before the Appellate Tribunal Inland Revenue.
A favorable Supreme Court ruling alone could unlock about Rs120 billion, bolstering government efforts to reduce reliance on development cuts.
