Pakistan’s upcoming federal budget for the fiscal year 2026-27 is expected to center on expanding the country’s limited tax base, as outlined by the International Monetary Fund (IMF) under the ongoing review of its $7 billion loan program. The shift signals a structural adjustment in fiscal planning that could bring previously under-taxed or untaxed sectors into the formal tax framework.
According to IMF Resident Representative in Pakistan, Mahir Binici, the government’s fiscal strategy is being aligned with the staff-level agreement reached for the third review of the Extended Fund Facility. The focus is to achieve an underlying primary balance target of 2 percent of GDP in FY27, a benchmark that reflects tighter fiscal discipline and improved revenue generation. One of the key policy directions involves broadening the tax base rather than raising existing tax rates. Analysts suggest this approach may lead to the inclusion of sectors such as agriculture, retail, real estate, information technology, and exports into the tax net. These segments have historically contributed less to direct taxation despite their economic significance.
Pakistan’s tax collection data underscores the urgency of reform. The Federal Board of Revenue (FBR) provisionally collected Rs11.735 trillion during fiscal year 2024-25, marking a 26 percent increase compared to Rs9.3 trillion in the previous year. Despite this growth, the figure fell short of the annual target of Rs12.3 trillion, highlighting persistent gaps in revenue mobilization.
The country’s tax-to-GDP ratio remains around 10 percent, which is considered low by global standards. Economic analysts estimate that Pakistan should aim for at least 15 percent to ensure sustainable fiscal health. Expanding the tax net is viewed as a necessary step toward closing this gap without placing additional burden on already taxed segments. The IMF’s framework also emphasizes strengthening coordination between federal and provincial governments. Discussions are underway regarding adjustments to the distribution of funds from the federal divisible pool, a move that has already drawn concerns from provinces, particularly Sindh. These negotiations are expected to play a critical role in shaping the final budget structure.
In addition to revenue measures, the IMF has called for increased public spending in key social sectors. The upcoming budget is expected to allocate more resources toward health, education, and social protection programs starting from July 2026. This reflects a dual approach of fiscal consolidation alongside targeted social investment. The reform agenda also includes the gradual withdrawal of subsidies, particularly in the energy sector, as part of broader efforts to stabilize public finances. By reducing reliance on subsidies and increasing direct taxation, policymakers aim to create a more balanced and transparent fiscal system.
Market observers suggest that the government may introduce relief measures in parallel, including potential reductions in salary tax for higher income brackets and adjustments to super tax. These changes are expected to support economic growth while maintaining alignment with IMF conditions. The staff-level agreement remains subject to approval by the IMF Executive Board. Once cleared, Pakistan is expected to receive a disbursement of approximately $1.2 billion, including around $1 billion under the Extended Fund Facility and an additional $200 million through the Resilience and Sustainability Facility.
This inflow is expected to provide support to Pakistan’s foreign exchange reserves at a time when the country faces external financial pressures, including rising global energy prices and a $3.5 billion repayment obligation to the United Arab Emirates. The IMF has indicated continued engagement with Pakistani authorities to maintain macroeconomic stability and reinforce policy credibility as the country navigates a challenging economic landscape.
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