ISLAMABAD (Mudassar Ali Rana) – The federal government has asked provinces to generate an additional Rs400 billion in revenue during FY2026-27 as part of commitments linked to Pakistan’s ongoing programme with the International Monetary Fund.
According to sources, Finance Minister Muhammad Aurangzeb held a virtual meeting with provincial finance ministers and urged them to increase both tax and non-tax revenues ahead of the upcoming federal budget.
Discussions focused on expanding collections from agricultural income tax, property tax and excise duties, while provinces were also asked to improve enforcement of sales tax on services and broaden the tax base.
Sources said Pakistan and the IMF have reached a preliminary understanding on key macroeconomic targets for the next fiscal year. The Finance Ministry has proposed a GDP growth target of 4.1 percent and average inflation of 8.6 percent for FY2026-27, while the IMF projects economic growth at 3.5 percent and inflation at 8.4 percent.
The IMF has reportedly proposed a primary surplus target of 2 percent of GDP — nearly Rs2.9 trillion — for the next fiscal year, requiring both the federal and provincial governments to maintain strict fiscal discipline.
Officials said provinces would be expected to contribute to a 0.3 percent increase in the tax-to-GDP ratio by expanding the scope of taxation, particularly through service-sector GST and agricultural taxation reforms.
Under the proposed framework, new agricultural income tax rates will apply to earnings during fiscal year 2026, although the major revenue impact is expected to materialise in FY2027. Sources noted that the IMF did not assign any agricultural income tax target for the current fiscal year.
The lender has also asked provinces to improve coordination with the Federal Board of Revenue through data sharing, automation and stronger enforcement mechanisms to ensure effective implementation of reforms.
According to officials, the IMF is separately holding virtual discussions with provincial governments regarding development expenditures and fiscal targets for next year’s budgets. Provinces have reportedly assured the IMF they will maintain fiscal surpluses and avoid policy decisions that could undermine programme objectives.
Sources further said rising international oil prices may keep inflationary pressure elevated during the first half of FY2026-27, which could prompt the State Bank of Pakistan to maintain a tight monetary policy stance.
Pakistan’s current account deficit is projected to remain below 1 percent of GDP, or around $4 billion, in the next fiscal year. Imports are estimated at nearly $70 billion, while workers’ remittances are expected to reach $42 billion.
Officials added that there would be no exemptions under the new agricultural income tax regime, while the IMF delegation is expected to conclude budget negotiations before leaving Pakistan.