Increased Taxes
ISLAMABAD: The International Monetary Fund (IMF) is urging Pakistan to impose significantly higher taxes on essential agricultural inputs as part of the upcoming national budget, a move that has sparked concerns among government officials, including Prime Minister Shehbaz Sharif.
According to sources familiar with the matter, the IMF is advocating for a substantial increase in the Federal Excise Duty (FED) on fertiliser—from the current rate of 5 percent to 10 percent. Additionally, the IMF is proposing the introduction of a new 5 percent tax on pesticides, which currently do not attract such levies.
These tax proposals were discussed during high-level talks on Wednesday between Jihad Azour, the IMF’s visiting director for the Middle East, and Pakistan’s Finance Minister Mohammad Aurangzeb at the Ministry of Finance.
The discussions were aimed at finalizing budgetary plans ahead of the new fiscal year, with the IMF emphasizing the need for these tax measures to help meet Pakistan’s revenue targets.
Prime Minister Shehbaz Sharif and his team are reportedly engaged in efforts to persuade the IMF to reconsider or ease these proposed increases, arguing that such taxes would impose a heavy financial burden on the country’s farming community.
Agriculture remains a critical sector in Pakistan’s economy, and higher taxes on inputs like fertiliser and pesticides could impact crop production costs and farmers’ profitability.
In addition to these tax hikes, a key issue is the impending rollout of the Agriculture Income Tax (AIT), set to come into effect from July 1, 2025. Although revenue estimates from the AIT are still preliminary, projections indicate that the provinces could generate between Rs40 billion to Rs50 billion from the farming sector in the short term.
Top government sources have estimated that the combined effect of doubling the FED on fertiliser and introducing the FED on pesticides at 5 percent could yield an additional Rs30 billion to Rs40 billion in tax revenues in the next fiscal year, should the IMF’s recommendations be fully implemented.
Jihad Azour is expected to hold further discussions with Prime Minister Shehbaz Sharif soon to negotiate these demands. Alongside agricultural taxation, the IMF is also advocating reforms to unify income and sales tax registration thresholds.
This would involve establishing a single turnover-based registration limit applicable to all businesses for both income tax and GST purposes, aiming to broaden the tax base and simplify compliance in Pakistan’s fiscal framework.
