As negotiations between Pakistan and the International Monetary Fund (IMF) near conclusion, the global lender has conditioned any meaningful tax relief for salaried individuals, property owners, beverage producers, and exporters on substantial reductions in government expenditure. The IMF team, which is wrapping up its visit to Islamabad on Friday, has made it clear that increased tax collection targets by the Federal Board of Revenue (FBR) must be matched by proportional budgetary cuts — excluding defense, which is set for an increase due to regional security concerns.
Prime Minister Shehbaz Sharif and his economic team met with the IMF delegation led by Jihad Azour, Director of the Middle East and Central Asia Department. During discussions, Pakistan requested a delay in the implementation of certain proposed taxes, such as an increase in federal excise duty on fertilizer from 5% to 10% and the imposition of a new 5% tax on pesticides. The IMF is expected to partially accommodate this request.
Despite expectations from government employees, there will be minimal or no increase in salaries and pensions. A previous plan to reduce the size of the civil workforce has lost momentum, and the budget is unlikely to yield meaningful savings in this area. With limited room for adjustments, officials are reportedly unsure how the final budget estimates will balance out. Pakistan is set to present the federal budget in Parliament on June 2, after which virtual talks with the IMF are expected to continue.
Before the Finance Bill 2025 becomes law, all related conditions must be aligned with the IMF’s requirements to minimize criticism during budget approval. A senior government official confirmed that revenue measures will play a central role in defining the country’s economic direction in the coming years. The government is making a last-ditch effort to convince the IMF to ease income tax rates for salaried individuals.
The FBR’s tax collection target for the next fiscal year is expected to exceed Rs. 14.1 trillion, contingent on the Finance Ministry’s ability to cut spending accordingly. The defense budget remains the only protected item and will be increased to meet national security demands. One potential area for cost-cutting lies in debt servicing, which currently stands at Rs. 8.7 trillion but may be reduced to between Rs. 8.0 and Rs. 8.2 trillion. The IMF has also called on provincial governments to cut expenditures and generate surplus revenues to help contain the national fiscal deficit. Meanwhile, the federal government has secured $1 billion in commercial financing for the current fiscal year ending in June 2025.