IMF's Azour urges fairer tax system as Pakistan's tax base stays narrow

The International Monetary Fund's Regional Director, Jihad Azour, used the opening of a two-day tax conference in Pakistan to argue that a fairer and more neutral tax system would improve compliance and let productive firms expand rather than stay small or informal. Speaking on the first day, he said broadening the tax base, strengthening revenue administration, reducing tax expenditures, protecting priority spending and improving public services were among Pakistan's priorities, and described tax reform as central to the objectives of the Extended Fund Facility.

The remarks sit awkwardly with the record of the programme's first two years. According to Federal Board of Revenue data, income tax collection from the real estate sector fell 38 per cent to Rs35.2 billion in the first three months of the current fiscal year, Rs22 billion less than the same period a year earlier, after the government halved income tax on the sector with IMF endorsement. The realty sector paid Rs200 billion in fiscal year 2024 and Rs236 billion last year, and collections may now fall below Rs150 billion following the rate cuts.

Agriculture income tax under the new regime introduced as part of the programme brought Punjab and Sindh a combined Rs5.1 billion as of June this year. Sindh collected Rs1.1 billion against a target of Rs2 billion, while Punjab's budget books showed Rs4 billion collected against a target of Rs10.5 billion. Retailers remain largely outside the net: only 137 had joined the traders' scheme as of 15 October against an annual target of one million, and the scheme, which the IMF endorsed, allows cash dealings. By contrast, the salaried class's annual contribution rose from Rs391 billion before the programme to Rs629 billion as of June 2026.

Azour said Pakistan had made important progress in restoring macroeconomic stability, rebuilding confidence, strengthening external buffers and supporting a gradual recovery, but that the next milestone was to turn stabilisation into stronger, more durable growth. He pointed to higher energy and food prices, trade and supply-chain disruption, weaker external demand and tighter global financing conditions as risks, and said fiscal policy must do more than meet primary balance targets. A medium-term tax strategy with clear objectives, well-designed policies, ambitious sequencing and transparent responsibilities could serve that purpose, he said, adding that implementation requires ownership, federal-provincial coordination, private-sector engagement and careful communication.

The conference took place amid high-level debate over whether the current FBR can deliver. The prime minister has shelved a plan to abolish the board, a decision that underlined the failure to advance tax-broadening reforms. Planning Minister Ahsan Iqbal has separately questioned the character of Pakistan's stabilisation in a letter to the prime minister, describing it as "stunted and borrowed" and saying its focus had been fiscal numbers.