ISLAMABAD: The International Monetary Fund is urging Pakistan to overhaul its tax system by reducing tax concessions, bringing under-taxed sectors into the tax net and easing excessive tax burdens, saying fairer rules and stronger enforcement are essential to raising revenue, attracting investment and building sustainable economic growth.
Jihad Azour, director of the IMF’s Middle East and Central Asia Department, made the remarks at a high-level workshop on “Reforms for a Modern and Growth-Friendly Tax System in Pakistan” organized by Pakistan’s Ministry of Finance and Revenue Oct. 20.
He stressed that Pakistan needs a simpler, fairer and more neutral tax system that encourages compliance, supports businesses and allows the private sector to play a bigger role in economic development.
“Addressing under-taxed sectors, rationalizing concessions, and reducing disproportionate burden are elements of a fair tax system,” Azour said in his opening remarks.
He emphasized that changing tax policies alone would not be enough. Pakistan must also strengthen its revenue administration to ensure that reforms are properly implemented and deliver lasting results. Many countries develop ambitious reform plans, he said, but struggle to turn them into meaningful outcomes without strong coordination, public engagement, clear communication and ownership.
The IMF’s recommendations come as Pakistan continues efforts to stabilize its economy and strengthen public finances. Earlier this month, IMF staff and Pakistani authorities reached a staff-level agreement on the fourth review of the $7 billion Extended Fund Facility and the third review of the Resilience and Sustainability Facility. The discussions also included the completion of the IMF’s 2026 Article IV consultation.
Azour said Pakistan had made important progress in restoring macroeconomic stability, rebuilding confidence, strengthening external financial buffers and supporting a gradual economic recovery. The next challenge, he said, is to turn those gains into stronger and more sustainable growth.
The IMF remains committed to supporting Pakistan’s efforts to build a more productive economy led by a stronger private sector, Azour said, adding that lasting reforms should also create better opportunities for the country’s younger generations.
He warned that rising inflation, fiscal pressures and financing needs across the region are making economic management more challenging. For Pakistan, exposure to higher energy and food prices, trade and supply chain disruptions, weaker external demand and tighter global financing conditions makes it especially important to protect economic stability while supporting the recovery.
Azour said fiscal policy must go beyond meeting primary balance targets and keeping public debt sustainable. It should also strengthen confidence in economic policies, support recovery and create room for public investment and social spending that improve long-term growth and people’s well-being.
He stressed that tax policy and tax administration must work together. A simpler tax framework makes compliance and enforcement easier, while an effective tax administration helps ensure that policy changes are credible and deliver results. Pakistan’s recent stabilization, he said, offers an opportunity to accelerate broader economic reforms.
Finance Minister Muhammad Aurangzeb also called for a shift from economic stabilization to sustainable, export-led growth, warning that Pakistan must avoid repeating the boom-and-bust cycles associated with consumption-driven expansion and excessive liquidity.
“How do we move from stabilization to growth? Because that’s the whole point,” Aurangzeb said, emphasizing that economic expansion must be sustainable rather than dependent on short-term consumption.
“Now it has to be not only growth, but it has to be sustainable growth,” he said, adding that the government would not allow past economic mistakes to be repeated. Aurangzeb described taxation as a critical part of Pakistan’s structural reform agenda and said tax policy should be shaped by economic value rather than designed simply to meet revenue targets.
“We have to continue to have a tax design which is led by economic value considerations, not by making the math work,” he said, acknowledging that the government still needs to meet its revenue requirements. The finance minister pointed to improvements in economic growth, saying Pakistan had moved from a contraction of about 0.3% to growth of approximately 3.65% to 3.7%.
He said the quality and sustainability of that growth matter more than the small difference between the two estimates. He also made a similar point about foreign exchange reserves, noting that Pakistan had increased its import cover from roughly two weeks to more than three months.
However, he cautioned that the sources of reserve accumulation are just as important as the headline figures. “The important thing is not only the quantum of these reserves but the quality of these reserves,” Aurangzeb said. The Ministry of Finance and the IMF are holding a two-day high-level workshop in Islamabad on Oct. 20-21 to discuss ways to modernize Pakistan’s tax system and strengthen its contribution to sustainable economic growth.
Participants include senior government officials, representatives of the IMF and World Bank, international tax experts, academics and private-sector leaders. The discussions cover six key areas as taxation and economic growth, modernization of the tax system, a unified sales tax framework across federal and provincial governments, a simpler and more neutral income tax system, tax administration and digitalization, and fiscal federalism and provincial tax revenues.
The workshop aims to develop recommendations for a broader, fairer, simpler and more predictable tax system that can improve revenue collection while encouraging investment, business expansion and productivity. A closing panel will bring together participants to identify priority reforms, agree on next steps and establish a framework for continued cooperation.
For Pakistan, the challenge is to raise more revenue without placing an excessive burden on businesses and taxpayers who already contribute to the formal economy. The IMF’s message is that a broader tax base, fewer unnecessary concessions and stronger administration must go hand in hand if the country is to move beyond stabilization toward lasting, private-sector-led growth.
