Pakistan’s upcoming IMF budget 2025-26 is set to bring tough tax reforms and subsidy cuts that may sharply raise inflation. To meet the IMF’s strict loan requirements, the government plans to widen the tax base and reduce the fiscal deficit. However, these steps could put added pressure on consumers and key sectors like agriculture and clean energy.
IMF Demands Drive Budget Overhaul
Virtual talks between Pakistan and IMF officials are underway. The IMF wants improved tax transparency, reduced evasion, and stricter enforcement. In response, the government may hike sales tax on luxury goods beyond the current 25%. It also plans to expand the list of taxable items.
A senior official confirmed that strict fiscal decisions are on the table. One of the key proposals includes increasing penalties for tax evasion through point-of-sale (POS) systems—from Rs0.5 million to Rs5 million. Criminal charges may also be introduced for serious tax offenses.
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Solar Sector Faces Setback
The government is also reviewing the removal of tax exemptions in several sectors. This includes solar energy, which could face fresh taxes. Energy experts warn that taxing solar panels and equipment would deter investment in renewable energy and raise costs for households trying to reduce electricity bills.
“The rollback of solar tax relief could weaken Pakistan’s clean energy shift,” said one analyst.
Farming Sector Hit by Proposed Tax Surge
The agriculture sector is likely to bear the brunt of new taxation. Sources reveal that the government plans to impose an 18% general sales tax on fertilizers, pesticides, and machinery. Federal excise duties on other agri-inputs may also rise. These measures could impact farmers’ productivity and increase food prices.
Inflation Concerns Mount
Economists warn that these IMF-driven reforms will likely raise inflation and deepen the cost-of-living crisis. Despite the potential backlash, officials insist these “painful but necessary” steps are crucial to avoid further economic instability and secure IMF funding to stabilize Pakistan’s fragile economy.
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