The International Monetary Fund (IMF) has shared a draft proposal with Pakistani authorities outlining key conditions for a new loan program. These proposals are expected to significantly impact the upcoming federal budget for the next fiscal year.

The Pakistani economic team has begun finalizing the budget in light of the IMF’s conditions. The IMF has proposed a tax revenue target of 1290 billion Pakistani rupees for the next fiscal year, while the Federal Board of Revenue (FBR) is pushing for a target of 1250 billion rupees.

Sources reveal that ongoing online discussions and virtual meetings between the Pakistani economic team and the IMF are progressing. The IMF has proposed increasing the standard rate of the General Sales Tax (GST) from 18% to 19%. This change, if implemented, could generate an additional 180 billion rupees in revenue for the FBR over the next year.

The IMF has also proposed increasing the tax rate for high-income earners and raising the maximum rate from 30% to 40%. Additionally, the IMF suggests reducing the number of tax slabs for government employees from seven to four.

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The IMF has proposed eliminating the fifth schedule from the Sales Tax Act, which relates to zero-rating, and bringing all items except exports under the standard GST rate. The IMF also suggests removing unnecessary tax exemptions in the sixth schedule and limiting tax concessions under the eighth schedule to only essential food items and health and education-related goods. The proposed tax rate for these items would be around 10%.

Sources within the Ministry of Finance state that the budget process is entering its final stages. As Pakistan is negotiating a new program with the IMF, the government is expected to implement the agreed-upon conditions in the upcoming budget.

This will pave the way for signing a staff-level agreement after budget approval, allowing Pakistan to secure a new three-year loan program from the IMF.