International Monetary Fund (IMF) has set a petroleum levy target of Rs1.73 trillion for Pakistan in the next fiscal year, tightening revenue conditions and imposing stricter monitoring measures to ensure tax collection targets are met under the country’s bailout programme.
According to the IMF staff-level report released on Friday, the levy target for fiscal year 2026-27 stands at Rs1.727 trillion. The figure is Rs259 billion higher than the current fiscal year’s target.
The report warned that Pakistan’s heavy dependence on fuel taxation leaves revenues vulnerable to economic shocks and declining demand.
“Petroleum products carry an effective tax rate of 166%, leaving revenues heavily reliant on fuel taxation and vulnerable to shocks,” the IMF said.
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Pakistan currently charges a levy of Rs117.4 per litre on petrol and nearly Rs43 per litre on diesel.
The IMF report showed that the federal and provincial governments would together undertake additional revenue measures worth Rs860 billion next year.
The federal government will generate Rs430 billion through new tax measures and enforcement actions. Provinces will contribute another Rs430 billion by expanding sales tax collection on services and implementing agricultural income taxes.
Pakistan has also accepted IMF conditions to impose Rs215 billion in additional taxes and raise another Rs215 billion through audit measures, production monitoring and tax enforcement initiatives.
IMF hardens conditions after FBR misses targets
The IMF has tightened oversight after the Federal Board of Revenue missed revenue targets for two consecutive years.
Unlike previous reviews, the IMF has now imposed a formal quantitative performance criterion for tax collection.
If the FBR misses agreed targets, Pakistan will require a waiver from the IMF Executive Board.
“With these measures, we expect to achieve revenues of Rs7.022 trillion by end-December 2026, which will be set as a new quantitative performance criterion,” according to Pakistan’s written assurance to the IMF.
The IMF has set Pakistan’s overall tax collection target at Rs15.27 trillion for the next fiscal year, requiring nearly 14% growth from expected collections this year.
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The report also revealed that the federal budget size for FY27 may exceed Rs17.1 trillion, around 9% higher than the revised budget for the current year.
Meanwhile, the defence budget could rise to Rs2.665 trillion, an increase of Rs101 billion.
The IMF additionally warned that Pakistan’s narrow tax base remains a major structural weakness.
Despite contributing 24.6% of economic value added, the agricultural sector faces an effective tax rate of just 0.3%, the lender noted.
Middle East conflict poses new economic risks
The IMF also warned that prolonged instability in the Middle East could damage Pakistan’s economic outlook.
The lender said higher oil prices, weaker remittance inflows and disruptions in Gulf financing could intensify pressure on the economy.
Pakistan imports nearly 81% of its fuel supplies from Gulf countries.
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The IMF warned that sustained disruption to oil and gas supplies could significantly hurt economic activity. The report also highlighted risks to remittances, noting that around 55% of Pakistan’s foreign remittances come from Gulf states.
Under an adverse scenario, Pakistan’s economic growth could slow to 2.6% next fiscal year, while inflation may climb close to 10%.
The IMF also ruled out fuel subsidies and linked continued loan disbursements to full recovery of fuel prices and taxes.
