As Pakistan readies its federal budget for 2025-26, a spell of inflation could be looming on the horizon, triggered by tight conditions imposed by the International Monetary Fund (IMF).
Sources close to the development said that the budget, on the way, may introduce a line of stringent budgetary steps aimed at obtaining a new loan tranche and to firm up the ailing economy.
The budget of 2025-26 is being prepared against the backdrop of continuous virtual negotiations between Pakistan’s economic team and the IMF. The dialogue is intended to boost tax collections and decrease the fiscal deficit, but consumer-hitting reforms are anticipated.
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Among the major suggestions is raising the luxury items sales tax from the existing 25% to an even greater percentage. The government also plans to enlarge the category of taxable luxury goods, further expanding the tax net. These are part of the IMF’s overall call for the federal budget 2025-26 to be more transparent and responsible for the finances.
The IMF has also urged the government to crack down on tax evasion by leveraging technology and empowering tax authorities. In response, the government may increase penalties for non-compliant businesses—particularly those evading taxes through Point of Sale (POS) systems. Penalties could rise from PKR 500,000 to a staggering PKR 5 million, with the added possibility of criminal charges for serious offenses.
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In further bad news for consumers, the budget could strip tax breaks on solar panels and other renewable power sources. Experts say this would deter the transition to clean energy and put further pressure on domestic budgets.
Agriculture, the economic driver of Pakistan, can be hit as well. Suggestions include a 18% General Sales Tax (GST) on pesticides, fertilizers, and farm machinery. In addition, Federal Excise Duty on farm machinery is also being proposed to increase.
