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The International Monetary Fund (IMF) has proposed setting a tax target of over Rs 15 trillion in the federal budget for the new fiscal year 2025-26. Additionally, there is a possibility that Pakistan may receive new financial targets as part of its ongoing economic program.
According to sources within the Ministry of Finance, the IMF is likely to introduce new conditions in the Memorandum of Economic and Financial Policies (MEFP) concerning the staff-level agreement for the disbursement of the next tranche of $1 billion to Pakistan. These conditions could potentially include measures aimed at enhancing revenue collection and economic reforms.
Regarding the real estate sector, the IMF has, in principle, agreed to a partial concession by reducing the withholding tax rate on property purchases by 2% starting from April 2025. This decision comes at the request of the Federal Board of Revenue (FBR). However, the withholding tax rate on property sellers will remain unchanged.
Sources in the Ministry of Finance have confirmed that virtual negotiations between Pakistan and the IMF are ongoing. There is speculation that the IMF may impose stricter conditions for the release of the $1 billion tranche. Moreover, Pakistan may be required to meet new financial targets, further complicating its economic roadmap.
The government is also expected to face a financial structural benchmark in the new fiscal year, with the likelihood of receiving additional targets aimed at increasing tax revenue. The finalization of these objectives is anticipated during online discussions between Pakistani officials and the IMF. The situation will become clearer as negotiations progress.
In these discussions, the IMF has also emphasized measures to curb tax evasion and has reiterated its proposal to set a tax target of over Rs 15 trillion in the new budget. Additionally, talks are ongoing to increase the tax-to-GDP ratio to 13% in the upcoming budget. Further deliberations have taken place regarding the collection of Rs 2,745 billion in non-tax revenue in the next fiscal year.
Ministry of Finance sources project that economic growth in the next fiscal year is expected to exceed 4%. Meanwhile, the IMF has reaffirmed its commitment to a partial concession, reducing the withholding tax rate on property purchases by 2% from April 2025. However, the tax rate for sellers remains unchanged.
In a recent virtual meeting between Pakistani officials and the IMF, the latter also agreed to reduce the federal excise duty rate on property buyers. However, this tax will continue to be levied on sellers. Furthermore, at the FBR’s request, the IMF has agreed to reduce the tax target for the current month (March 2025) by Rs 60 billion.
This development is expected to facilitate consensus on the Memorandum of Economic and Financial Policies (MEFP) and pave the way for the staff-level agreement, which is anticipated to be finalized by next week.
Regarding tax reductions on property transactions, the FBR had initially requested the IMF to lower the withholding tax under Sections 236C and 236K for both sellers and buyers. However, the IMF has only agreed to reduce the tax rate under Section 236K by 2% for buyers. Additionally, the IMF has permitted the collection of Rs. 1,257 billion from banks to address the issue of circular debt in the power sector.
