Govt plans taxes increases, budget subsidy cuts

The government is ready to present a hard federal budget for the financial year 2025-26, with sweeping reforms that may cause a new wave of inflation, as the government seems to meet the rigorous requirements set by the International Monetary Fund (IMF).

According to Express News, virtual talks between the Pakistani financial team and IMF officials are continuing, focusing on increasing tax revenue and reducing the country’s fiscal deficit. The measures discussed include increasing the tax on sales on luxury products above the current 25 % threshold and the extension of the taxable list.

“The government is seriously considering the strict fiscal steps to achieve IMF goals,” said a senior employee involved in discussions.

The IMF has requested greater transparency in the tax system, expanding the use of technology to limit tax evasion and more power for tax services. In response, the government plans is expected to increase sanctions for tax evasion (POS)-from RS0.5 million to 5 million-and may introduce criminal procedures for serious offenses.

Read more: SAI urges tax reforms in budget proposals

Also under consideration is the removal of tax exemptions in various sectors, including solar panels. Analysts warn that such moves could stifle investment in renewable energy sources and the burden households they are already facing at increasing costs. “The withdrawal of tax relief for solar products will face a blow to cleanse energy efforts,” said one energy analyst.

Farmers can also hit hard. The proposed budget includes a general tax on sales of 18 % of fertilizers, pesticides and agricultural equipment, along with possible hiking in federal consumption taxes for parcel entrances, according to sources.

Economic experts warn that these measures, if approved, will drive inflation, prevent agricultural productivity and exacerbate the cost crisis. “These are painful but necessary steps,” one employee said. “The priority is to secure the IMF agreement to avoid a deeper financial crisis.”

The budget will be presented on June 10.