by The International Monetary Fund (IMF) has recommended that Pakistan increase its General Sales Tax (GST) rate as part of efforts to generate additional revenue for funding critical development projects. This proposal comes at a time when Pakistan is striving to stabilize its economy, boost infrastructure investment, and meet fiscal targets under its ongoing IMF program.
Why Raise the GST?
Pakistan’s tax-to-GDP ratio remains among the lowest in the region, limiting the government’s ability to finance large-scale development initiatives. By raising the GST rate, the IMF believes Pakistan can:
- Expand its revenue base.
- Reduce its reliance on foreign loans.
- Allocate more funds for infrastructure, healthcare, education, and social protection programs.
Currently, the standard GST rate in Pakistan is 18%. Any potential increase would directly affect the prices of goods and services, making it a contentious issue for both policymakers and consumers.
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Impact on the Economy and Consumers
While raising GST could help the government collect more revenue, it may also lead to:
- Higher inflation, as increased GST will directly raise the cost of consumer goods.
- Reduced purchasing power, especially for low- and middle-income households.
- Pressure on businesses, which might pass on the tax burden to consumers.
To mitigate these effects, the IMF has suggested that Pakistan combine tax reforms with targeted subsidies and cash transfers for vulnerable segments of society.
Government’s Stance
The government is reportedly evaluating the IMF’s recommendation, considering the balance between revenue generation and public hardship. Any decision to increase GST will likely be part of the upcoming budget proposals, with a focus on development-oriented spending.
Way Forward
Pakistan’s economic recovery depends heavily on increasing domestic revenue. However, experts argue that instead of solely raising GST, the government should also:
- Expand the tax net to include untaxed sectors.
- Curb tax evasion through digital reforms.
- Implement progressive taxation to ensure fairness.
