Amid discussions to secure a new bailout package for Pakistan’s economy, the International Monetary Fund (IMF) has revealed a significant tax compliance gap equivalent to Rs7 trillion annually, standing at 6.9% of the GDP.
Pakistan engaged in talks with the IMF’s visiting mission, led by Mission Chief Nathan Porter, emphasizing the importance of political stability for implementing structural economic reforms under the expected $6-8 billion Extended Fund Facility (EFF) bailout package.
During the discussions, Pakistan also explored the possibility of increasing the EFF amount through climate finance, aiming for a total package of around $8 billion. The meeting included key stakeholders such as the State Bank of Pakistan governor, Federal Board of Revenue chairman, and senior finance ministry officials.
The finance minister expressed gratitude for the successful completion of the Standby Arrangement (SBA) and highlighted improvements in macro-economic indicators. Discussions delved into tax proposals, with the IMF presenting a tax gap analysis highlighting policy and compliance gaps, including areas such as GST, income tax, customs, and Federal Excise Duty (FED).
The tax gap analysis, based on FY22/23 data, revealed a policy and compliance gap of 6.9% of GDP, with policy gaps primarily attributed to sales tax and compliance gaps observed across various sectors, including retail, transport, cross-border trade, and real estate.
The IMF emphasized the need for withdrawing sales tax exemptions on fertilizers, implementing effective compliance risk management systems, and streamlining tax rates across sectors. It also called for strengthening public finances through fiscal consolidation and broadening the tax base to support priority development and social assistance spending.
The IMF’s recommendations aim to address Pakistan’s tax inefficiency and low revenue capacity, positioning the country for sustained economic growth and resilience.
