The International Monetary Fund has indicated that Pakistan’s upcoming federal budget for FY2026–27 w-ill prioritise expanding the country’s tax base, as part of ongoing reforms under its USD 7 billion loan programme.
Speaking to Arab News, IMF Resident Representative Mahir Binici said the budget is being prepared in line with the staff-level agreement reached during the third review of the Extended Fund Facility (EFF). The plan aims to achieve an underlying primary surplus of 2% of GDP in the next fiscal year.
The IMF emphasised that broadening the tax base would involve bringing more sectors and individuals into the tax net, rather than increasing tax rates. Analysts say this could include sectors that have historically remained under-taxed or outside the formal system, such as agriculture, retail, real estate, information technology and exports.
Pakistan’s tax collection for FY2024–25 stood at a provisional PKR 11.735 trillion, reflecting a 26% increase from PKR 9.3 trillion in the previous year. However, the figure fell short of the PKR 12.3 trillion target, highlighting structural challenges in revenue mobilisation.
According to the IMF, fiscal reforms will also focus on improving coordination between federal and provincial governments, alongside strengthening fiscal discipline. The next budget is expected to include increased allocations for health, education and social protection programmes.
The government has also been considering adjustments to the federal divisible pool, which determines the distribution of revenues to provinces. This has drawn reservations, particularly from Sindh, amid concerns over reduced provincial shares.
Experts note that Pakistan’s tax-to-GDP ratio remains around 10%, significantly below the estimated potential of 15%, underscoring the need for structural reforms.
The IMF programme, which is subject to approval by its executive board, is expected to unlock a USD 1.2 billion tranche for Pakistan. This includes around USD 1 billion under the EFF and USD 200 million through the Resilience and Sustainability Facility.
The funds are expected to support Pakistan’s foreign exchange reserves at a time of external pressures, including high global energy prices and upcoming debt repayments. The government is scheduled to present the new budget in June ahead of the next fiscal year beginning July 1.
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