IMF Sets New Demands for Pakistan, Calls for Accurate Data Use and Wider Tax Net

The International Monetary Fund (IMF) has placed new demands on Pakistan, urging the government to use accurate data in budget preparation, expand the tax net, and audit supplementary grants.

During its visit to Pakistan, the IMF’s technical team held discussions with government officials and emphasized the need for better data utilization in the upcoming budget. The team also stressed widening the tax base and carrying out strict audits of supplementary grants.

The IMF will release its technical report on Pakistan’s budget-making process in January, but early findings highlight serious issues in the country’s tax system.

According to the IMF, tax evasion, corruption, hidden income, and complicated tax laws are causing massive losses to the national exchequer. The report warns that Pakistan’s registered taxpayers are far fewer than official claims.

The IMF has recommended increasing the number of registered taxpayers to at least 15 million, controlling fake invoices and refunds, and ending tax exemptions or special incentives for specific sectors.

It further revealed that out of the 5.9 million tax returns filed last year, 43% declared zero income, which is a major reason Pakistan’s tax-to-GDP ratio has remained stuck at just 10% over the past five years. The Fund says either incomes are being hidden or non-genuine filers have entered the system.

The report states that due to tax evasion alone, Pakistan faces a budget deficit of Rs 3.4 trillion, equal to 3.9% of GDP. It added that the heavy use of concessionary SROs has made the system even more complicated, with 168 SROs issued in 2024 alone.

The IMF also criticized the spread of the informal economy, weak internal controls in the refund system, lack of transparency, and almost no legal action on corruption cases. It highlighted ineffective accountability within the FBR as a major cause of leakage in revenue.

The Fund has urged Pakistan to immediately end tax exemptions for different sectors, document the economy, ensure full registration of all businesses, strengthen checks on fake invoices, and develop a long-term tax policy.