Meaningful relief for compliant income tax payers, salaried individuals and the corporate sector — who together contribute roughly half of Pakistan’s revenues — appears unlikely. Most experts expect only a modest downward adjustment in the year ahead.
To avoid a revenue shortfall and keep the International Monetary Fund (IMF) programme on track, analysts believe the government may again fall back on lucrative indirect measures, most notably a higher petroleum levy.
Those who trust the Federal Board of Revenue’s (FBR) reform intent and believe the government is committed to improving fairness by targeting under-taxed sectors and identified tax evaders also acknowledge that even the best efforts will take time to bear fruit. As a result, the tax-to-GDP ratio is likely to remain flat in the best-case scenario, and could even decline if the FBR becomes complacent or the government fails to sustain its reform commitments or control expenditure.
In 2026, to contain public discontent over shrinking jobs and weak investment, the government may be compelled to strike a finer balance between growth needs and stabilisation demands. Beyond resistance from powerful interest groups, it will also test the government’s economic team’s ability to negotiate effectively with the IMF.
A recent media report indicates that the IMF, which is closely monitoring Pakistan’s economic trajectory, also expects tax collection to remain broadly stagnant in CY26.
There appears to be little room for tax-rate cuts next year, with minor adjustments expected at best
From 8.9 per cent the previous year, the tax-to-GDP ratio rose to 10.3pc in FY25 and could inch up about eight percentage points to 11.1pc in FY26 due to higher taxation measures in the current fiscal year ending in June 2026. However, if the next budget includes expected reductions in direct tax rates, revenue collection may weaken in the second half of 2026, stalling further improvement and keeping the tax ratio broadly unchanged in FY27.
FBR revenues increased to Rs11.7 trillion in FY25 from Rs9.3tr in FY24, and are projected to reach Rs13.98tr by the end of the current fiscal.
Musadaq Zulqarnain, a prominent businessman and member of several government advisory forums, expressed cautious optimism for over-taxed segments. “Both the corporate sector and the salaried class are under severe strain. Any real relief, however, must stay within IMF parameters. My view is that the FY27 budget may offer some easing for both groups. Fiscal space for such relief can only emerge from substantial improvements in revenue mobilisation. The most sustainable path is broadening and deepening the tax base through leveraging data, technology, and stronger enforcement to uncover under-reported incomes. If implemented well, this can enable tax rationalisation without undermining stability or the IMF programme.”
Dr Hafiz Pasha, eminent economist and former finance minister, sees little room for tax-rate cuts next year. “At best, I expect only minor adjustments, if any,” he said.
A source familiar with official discussions said most participants favour revising tax rates. “I support and expect a major reduction of taxes on salaried individuals and corporations. We have the fiscal space; what limits us is the IMF’s primary surplus requirement. Current taxes exceed their optimal level and are now producing diminishing returns. Businesses are shutting down or slipping into informality to survive. Bringing rates back to reasonable levels would curb evasion and help expand the tax.”
Dr Nadeem Javaid, Vice Chancellor of the Pakistan Institute of Development Economics (PIDE) and former chief economist, sees no scope for real tax cuts in 2026. “Substantial tax relief is unlikely while Pakistan remains under the IMF programme and struggles to meet ambitious revenue targets. Without credible offsetting measures, broad-based rate reductions are fiscally untenable.”
He also expects modest, targeted tweaks, minor slab adjustments or limited rationalisation, as the IMF continues to prioritise revenue mobilisation, compliance, and a wider tax base over statutory rate cuts. Still, Dr Javaid believes that some relief for salaried taxpayers is economically warranted, given the heavy burden on documented incomes and the resulting erosion of purchasing power and domestic demand.
Covering any revenue gap, he added, would require stronger tax administration, fewer exemptions, better enforcement in retail, real estate, and agriculture-linked incomes, and tight expenditure control. Unfunded tax cuts could jeopardise the IMF programme, making sequencing and financing essential.
Former federal minister Dr Nadeem ul Haq lamented over the narrow focus of Pakistan’s economic discourse. “All we hear is ‘tax, tax, tax’, because there is no real economics in the media or government, and our universities are producing no economists,” he remarked.
Rehmatullah Khan Wazir, a former FBR member, noted strong public pressure for tax relief. “There is significant pushback from professionals and salaried workers after sharp tax hikes over the past two years, driven by the IMF’s recommendations. The government may reconsider, especially given the accelerating brain drain, as high taxation is understood to be one contributing factor.
“I expect the basic exemption to rise from Rs600,000 to Rs800,000, the third slab to fall from 11pc to 8pc, and the top rate from 35pc to 30pc. These adjustments would be reasonable and should not derail the IMF programme.”
Chairman FBR, Finance Minister Aurangzeb and members of his team were approached for comment, but no response was received before the deadline.
Published in Dawn, The Business and Finance Weekly, December 29th, 2025
