ISLAMABAD: The International Monetary Fund (IMF) has proposed increasing Pakistan’s standard General Sales Tax (GST) rate from 18 percent to 19 percent in the Federal Budget 2026-27 as part of efforts to boost tax revenues and address persistent revenue shortfalls.
However, Pakistani authorities have strongly opposed the proposal, arguing that an increase in GST would fuel inflation and place an additional burden on consumers already struggling with rising living costs.
According to sources, the IMF has recommended the one-percent GST increase to help the government achieve a tax revenue target exceeding Rs15 trillion in the next fiscal year and compensate for the current year’s revenue shortfall. If implemented, the measure could generate an additional Rs250 billion to Rs300 billion in tax revenues.
The proposal has also sparked concerns over potential increases in the prices of solar panels, electric vehicles (EVs), and hybrid vehicles. Sources involved in budget preparations revealed that several tax-related proposals are currently under consideration, including significant increases in GST rates on green energy products and vehicles.
Under the proposals, the existing GST rate on hybrid vehicles could rise from 8 percent to 18 percent, while the tax on electric vehicles may increase from 1 percent to 18 percent. Similarly, GST on solar panels could be raised from the current 10 percent to 18 percent.
If approved, the changes would likely increase the prices of electric cars, motorcycles, rickshaws, buses, trucks, tractors, pickup vehicles, and double-cabin vehicles, potentially slowing the adoption of cleaner transportation technologies in the country.
Officials from the Ministry of Industries and Production have confirmed that proposals to increase GST on electric and hybrid vehicles as well as solar panels are under review, but stressed that no final decision has been made.
The IMF’s recommendation comes amid concerns over revenue collection performance. The Federal Board of Revenue (FBR) is expected to collect around Rs13 trillion by the end of the current fiscal year, falling short of its target of Rs13.979 trillion.
According to official figures, the FBR collected Rs11.232 trillion during the first eleven months of the fiscal year. To meet the annual target, it would need to collect Rs2.747 trillion in June alone, a challenging task given current trends. Even reaching the Rs13 trillion mark would require collections of approximately Rs1.668 trillion during the final month of the fiscal year.
Sources said the IMF has projected average inflation at around 8.4 percent during the next fiscal year. Pakistani authorities fear that increasing GST could push inflation even higher, undermining economic stability and public purchasing power.
Officials familiar with the negotiations said the IMF has also proposed increasing the concessional GST rate on hybrid vehicles to the standard 18 percent rate, as the current preferential tax regime is set to expire in 2026. Discussions between the government and the IMF on the taxation of electric vehicles are still ongoing.
Meanwhile, the IMF has reportedly endorsed a fixed tax scheme for retailers in the upcoming budget. Under the proposal, retailers with annual turnover of up to Rs200 million would pay a fixed tax of Rs25,000 and be exempt from audits.
Government and IMF officials continue discussions on the final budget framework, with key decisions expected before the presentation of the Federal Budget 2026-27.
Reporting by Tanveer Hashmi and Mehtab Haider.
