Budget 2025: IMF suggests tax reforms, green projects funding

Pakistan and the International Monetary Fund (IMF) have begun key discussions ahead of the next fiscal year’s federal budget, with a focus on revenue generation and environmental initiatives.

According to sources, the IMF has proposed the imposition of a carbon levy of Rs 5 per litre on petrol and diesel. The international lender estimates this measure could generate approximately Rs 25 billion in revenue.

It has further suggested that the amount collected through the carbon levy should be spent on environment-friendly projects.

Sources added that in the upcoming fiscal year, the petroleum levy per litre is not expected to exceed Rs 78. Based on this rate, total collections from petroleum and diesel levies in Pakistan could amount to Rs 1,423 billion.

One of the proposals under discussion is the use of carbon levy proceeds to promote electric mobility in the country. This includes financing electric motorcycles and rickshaws through easy instalment plans.

In a move likely to impact the auto sector, the government and IMF have reportedly agreed to lift the ban on used car imports.

However, to protect the new car industry, a 40 percent higher tax rate is being considered on used vehicles compared to new ones. Sources indicate that this tax difference will be reduced by 10 percent annually in Pakistan, with a complete phase-out expected by 2030.

The IMF has also demanded the withdrawal of tax exemptions previously granted to the former FATA and PATA regions.

In addition, the IMF is pushing for the imposition of the general sales tax (GST) on fertiliser at the standard national rate.

Earlier, it was announced that Pakistan’s federal budget 2025-26 is estimated to surpass PKR 17.6 trillion, with the Federal Board of Revenue (FBR) tasked with collecting PKR 14,307 billion in tax revenu.

According to official documents, negotiations between Pakistan and the International Monetary Fund (IMF) have progressed, with key fiscal targets agreed upon.