The International Monetary Fund (IMF) has proposed increasing Pakistan’s standard General Sales Tax (GST) rate from 18 percent to 19 percent in the federal budget for fiscal year 2026-27, a move that could significantly impact consumer prices and raise the cost of solar panels, electric vehicles, and hybrid vehicles.
According to government sources, Pakistani authorities are resisting the proposal, arguing that an increase in the GST rate would further fuel inflation at a time when consumers are already facing high living costs.
The proposal has emerged as part of ongoing discussions between Pakistan and the IMF over revenue generation measures for the next fiscal year. The government is targeting tax revenues exceeding Rs15 trillion and is seeking ways to address the revenue shortfall recorded during the current fiscal year.
Officials familiar with the negotiations said the IMF believes that raising the GST rate by one percentage point could generate an additional Rs250 billion to Rs300 billion in tax revenues. However, policymakers fear that the measure would increase the prices of goods and services across the economy, placing additional pressure on households.
Among the most significant proposals under consideration is a substantial increase in taxation on electric and hybrid vehicles. Sources said the GST rate on hybrid vehicles could rise from the current 8 percent to the standard 18 percent rate. Similarly, GST on electric vehicles could increase from 1 percent to 18 percent if the proposal is approved.
The changes would likely result in higher prices for electric cars, motorcycles, rickshaws, buses, trucks, pickup vehicles, tractors, and other electric transport options. Industry experts warn that such measures could slow the adoption of environmentally friendly transportation technologies in Pakistan.
Solar energy equipment may also be affected. Officials indicated that GST on solar panels could increase from the existing 10 percent rate to 18 percent. If implemented, the move could make solar energy systems more expensive for households and businesses seeking alternatives to rising electricity costs.
Government officials from the Ministry of Industries and Production have confirmed that discussions regarding GST adjustments on solar panels, electric vehicles, and hybrid vehicles are ongoing. However, they emphasized that no final decision has yet been taken.
The IMF’s recommendation comes amid concerns over Pakistan’s tax collection performance. The Federal Board of Revenue (FBR) collected Rs11.232 trillion during the first eleven months of the current fiscal year and faces a challenging task in meeting its revised annual target.
Sources also said the IMF has projected Pakistan’s average inflation rate for the next fiscal year at around 8.4 percent. Negotiations between Islamabad and the IMF are expected to continue before the federal government finalizes the budget proposals.
The final decision on tax measures, including any increase in GST, will be announced when the federal budget for 2026-27 is presented.
