IMF pushes Pakistan to withdraw more tax concessions in upcoming budget: sources

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) are continuing negotiations on the upcoming federal budget, with the IMF reportedly asking the government to further reduce tax exemptions and concessions to boost revenue collection, ARY News reported citing sources.

According to sources, the government expects to generate around Rs40 billion in additional revenue in the next fiscal year by scaling back tax relief measures.

Sources said the federal government has decided not to extend several tax exemptions beyond June 30, 2026, and is planning to increase revenue by phasing out a number of tax concessions in the FY2026-27 budget.

The income tax exemption currently available to the former Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) is expected to expire on June 30, 2026. From July 1, 2026, individuals and companies operating in those areas may become subject to the standard tax regime.

The government is also considering a gradual increase in sales tax rates in the former tribal regions. Sales tax on industries in FATA and PATA could rise from 10 percent to 12 percent, while imported industrial raw materials in the areas may also face a 12 percent sales tax.

Sources further said the withholding tax exemption for FATA and PATA is likely to end from July 1, 2026.

Meanwhile, tax relief for the electric vehicle sector may also be withdrawn. The sales tax exemption on CKD kits for electric vehicles is expected to expire on July 1, 2026, while the reduced one percent sales tax on locally manufactured or assembled electric vehicles will remain in place only until June 30, 2026.

Similarly, the concessional sales tax regime for hybrid electric vehicles is set to expire at the end of the current fiscal year, with no further extension currently under consideration.

Sources said the sales tax exemption on electricity supply to tribal areas will remain effective until June 30, 2026, while the tax exemption available on locally manufactured silos is also expected to end on the same date.

In another revenue-enhancing measure, the government is likely to double the Climate Support Levy on petroleum products from July 1, 2026. The levy is expected to increase from Rs2.5 per litre to Rs5 per litre.

Officials estimate that the Climate Support Levy could generate more than Rs90 billion in revenue during the next fiscal year.