IMF Presses Pakistan to Hike Taxes on Fertilizer, Pesticides Amid Revenue Shortfall

The International Monetary Fund is urging Pakistan to double the federal excise duty on fertilizer and introduce a new levy on pesticides, as the government faces a looming shortfall in its annual tax target. The IMF has proposed raising the excise duty on fertilizer to 10% and imposing a 5% duty on pesticides, measures intended to partially offset a projected revenue gap of Rs. 400-500 billion for the fiscal year, reported Express Tribune. The government, however, has requested that any new taxes be deferred until next year, citing the sector’s vulnerability after recent floods left 3.3 million acres underwater in Punjab and devastated 27 key agricultural districts. With just two days left in the current review, sources say the IMF may agree to a modest reduction in the Federal Board of Revenue’s (FBR) tax target, potentially by Rs. 167-240 billion, rather than insisting on immediate, sweeping new measures. The FBR’s original target of Rs. 14.13 trillion is now likely to be revised down to between Rs. 13.89 trillion and Rs1. 3.96 trillion, with the sales tax target also set for a cut. The IMF’s push comes as Pakistan’s agriculture sector reels from the abrupt withdrawal of support price mechanisms and mounting climate shocks. “We will oppose any move that increases the cost of agricultural inputs, especially when farmers are already struggling,” said Syed Naveed Qamar, former finance minister and senior PPP leader. The PPP has consistently resisted new taxes on fertilizer and pesticides, and Prime Minister Shehbaz Sharif has previously asked the IMF to delay such measures. The issue remains unresolved, with the final outcome to be determined in the last draft of the Memorandum of Economic and Financial Policies (MEFP) that will set the terms for the next IMF review. If the government’s latest deferral request is accepted, it would mark the second time in three months that the IMF has softened its stance on the issue. Meanwhile, the Sindh government has extended the deadline for filing agricultural income tax returns by one month, giving farmers until October 30 to comply with new provincial tax laws introduced under the $7 billion IMF bailout. The IMF’s renewed focus on agricultural taxes comes as the sector faces mounting losses and the broader economy struggles to meet growth targets. The Fund now projects GDP growth of 3-3.5% for the current fiscal year, well below the government’s 4.2% goal, citing flood damage to major Kharif crops and persistent structural challenges. The IMF maintains that effective policy implementation is critical for macroeconomic stability and long-term growth, and has pressed Pakistan to phase out preferential treatments and market interventions in agriculture. Both the IMF and the government have cited environmental concerns over excessive fertilizer use, arguing that low or zero excise duties distort the market, stifle innovation, and threaten fiscal sustainability.