Ahead of Pakistan’s federal Budget 2026-27, the International Monetary Fund (IMF) has reportedly urged the government to increase the standard General Sales Tax (GST) rate from 18% to 19%.The proposal comes in response to concerns over weaker-than-expected tax collection performance and a widening shortfall against revised targets.

According to official estimates, a 1% hike in GST could generate an additional Rs250 to Rs300 billion in revenue, which the IMF views as necessary to stabilise fiscal pressures.

Pakistani authorities, however, are strongly resisting the demand, arguing that such a move would further intensify already high inflation and increase the burden on consumers.

The Federal Board of Revenue (FBR) is expected to fall short of its Rs13 trillion target despite approaching that level, which has prompted the IMF to push for alternative revenue measures, including higher indirect taxation.The IMF has also suggested revising GST policies for hybrid vehicles, recommending an increase from 8.5% to the standard 18% once the existing concession expires.Discussions regarding electric vehicles (EVs) are still ongoing between both sides.

In addition, the IMF has supported a simplified taxation scheme for retailers, where those with turnover up to Rs200 million would pay a fixed tax of Rs25,000 and be exempt from routine audits, except in cases of major discrepancies.Negotiations also include possible relief for the salaried class, although the IMF is reportedly insisting on compensating revenue measures.On the other hand, there is discussion about reducing the Super Tax by 1.5% to 2% in the upcoming budget.Despite these proposals, tensions remain as Pakistan continues to negotiate difficult fiscal reforms with the IMF.

The FBR chairman has denied that any formal proposal has been finalised, stating that discussions are still ongoing and subject to change before final budget approval in parliament.