IMF calls for Pakistan to rationalise tax concessions, bring under-taxed sectors into net

The International Monetary Fund (IMF) has called on Pakistan to rationalise tax concessions and bring under-taxed sectors into the tax net, saying a fairer and more neutral tax system is critical to improving revenue collection, encouraging compliance and supporting private-sector growth.

“Addressing under-taxed sectors, rationalising concessions, and reducing disproportionate burden are elements of a fair tax system,” said Jihad Azour, Director, IMF Middle East and Central Asia Department, in his opening remarks at the Ministry of Finance and Revenue’s “workshop on “Reforms for a Modern and Growth-Friendly Tax System in Pakistan”.

The official also stressed that tax policy reforms must be accompanied by stronger revenue administration to ensure effective implementation.

“Many countries have strong reform ideas, but few translate them into durable results. Implementation requires ownership, coordination, engagement, and communication,” he said.

Earlier this month, the IMF staff and Pakistan have reached a staff-level agreement on the fourth review of the $7-billion Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility (RSF), while completing the 2026 Article IV consultation.

The IMF official said that Pakistan has made “important progress” towards “restoring microeconomic stability, rebuilding confidence, strengthening external buffers and supporting gradual recovery”.

“The next milestone is to turn this stabilisation into stronger and more durable growth,” said Azour.

He said that the IMF remains committed to supporting Pakistan authorities to “succeed in building an economy capable of delivering higher levels of productivity, led by a stronger private sector, and ready to deliver better opportunities for its young generations.”

Referring to the regional outlook, Azour said inflation, fiscal pressure and financing needs are becoming more visible.

“For Pakistan, exposure to higher energy and food prices, disruption to trade and supply chains, external demand, and an abrupt tightening in global financing conditions heightens the premium on preserving stability while supporting the recovery.

He said in this context, the fiscal policy must do more than achieve the primary balance targets and protect debt sustainability.

“It must reinforce policy credibility, foster the recovery, and create space for the public investment and social spending needed to support stronger long-term growth and the well-being of the Pakistani people.”

Azour said tax policy and tax administration must move together, as a simpler policy framework makes administration easier, and a strong administration makes policy reform credible.

“Pakistan’s stabilisation gains create opportunity; it needs to be amplified through transformative reforms,” the IMF official said in his concluding remarks.

Addressing earlier, Finance Minister Muhammad Aurangzeb stressed the need for Pakistan to shift from economic stabilisation to sustainable, export-led growth, saying the country must avoid repeating past boom-and-bust cycles driven by consumption and excessive liquidity.

“How do we move from stabilisation to growth? Because that’s the whole point,” Aurangzeb said, emphasising that economic expansion must be sustainable rather than driven by short-term consumption.

“Now it has to be not only growth, but it has to be sustainable growth,” he said, warning against a return to a liquidity-fuelled, consumption-led model.

“We have seen those experiments in the past. Those have actually led us to the boom and bust cycles. And one thing is for sure, we will not let that repeat,” he added.

The minister said the government would focus on sustainable export-led growth.

He described taxation as a “very critical component” of the structural reform agenda.

Aurangzeb said tax policy should be guided by economic considerations rather than designed solely to meet revenue targets.

“We have to continue to have a tax design which is led by economic value considerations, not by making the math work,” he said, acknowledging that the government still needed to meet its revenue requirements. “But that cannot be the leading point here.”

Referring to economic growth, he said the country had come a long way from a contraction of around 0.3% to growth of approximately 3.65–3.7%.

“Whether it is 3.7% or 3.65% is not material, but we have come a long way from -0.3% to this delta,” he said.

However, he stressed that the quality of growth mattered as much as its pace, drawing a parallel with the country’s foreign exchange reserves.

The minister said Pakistan’s reserves had recovered from a level equivalent to around two weeks of import cover to more than three months, while cautioning that the source of reserve accumulation was also important.

“The important thing is not only the quantum of these reserves but the quality of these reserves,” he said.

The Ministry of Finance and the IMF are convening a two-day high-level workshop in Islamabad on October 20–21, 2026. The workshop will bring together senior government officials, representatives of the IMF and World Bank, international tax experts, academics and private-sector leaders to discuss priorities for modernising Pakistan’s tax system and strengthening its contribution to sustainable economic growth.

The workshop will feature six substantive sessions covering taxation and economic growth, modernisation of Pakistan’s tax system, a unified sales tax regime across the federation and provinces, a simpler and more neutral income tax system, tax administration, digitalisation and taxpayer trust, and fiscal federalism and provincial tax revenues.

Discussions will focus on developing a broader, fairer, simpler and more predictable tax system that supports revenue mobilisation, investment, business expansion and productivity.

The workshop will conclude with a high-level panel to consolidate recommendations, identify priority next steps and establish modalities for continued engagement among stakeholders.