The equity market came under pressure on Tuesday as market participants, wary of potential tax measures and fiscal tightening in the upcoming federal budget, opted to stay on the sidelines.

“The market is now anticipating the new budget and the new policies or taxation that will be introduced. This is causing participants to adopt a wait-and-watch strategy in order to gain clarity before making any moves,” said Ahfaz Mustafa, CEO of Ismail Iqbal Securities.

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index fell to an intraday low of 118,527.09 points, down 1,162.54 points, or -0.97%, from the previous close of 119,689.63.

The index touched a high of 119,900.37 points, posting a modest gain of 210.74 points, or 0.18%, before reversing course amid selling pressure.

Pakistan and the International Monetary Fund (IMF) are reportedly working through proposals to raise an additional Rs700 billion in revenue through new taxation and enforcement measures in the 2025–26 federal budget, scheduled to be presented in Parliament on June 2.

As part of these talks, the government has requested tax rationalisation in key sectors, including salaried income, tobacco, and beverages.

According to sources, the IMF has objected to proposed tax relief for middle-income earners in the Rs0.2–0.4 million monthly income bracket and has asked for clarification on the revenue impact of such revisions.

The Annual Plan Coordination Committee (APCC) is due to meet on May 26 to finalise the macroeconomic framework and recommend a development budget to the National Economic Council (NEC).

In its latest assessment, the IMF has tightened future funding conditions for Pakistan, warning of economic vulnerabilities linked to US President Donald Trump’s tariff policies and regional tensions with India, Bloomberg reported.

The Fund has also urged Pakistan to seek parliamentary approval of the budget, reform agricultural income taxation across provinces, and prepare a timeline for phasing out industrial incentives.

Other conditions include timely adjustment of electricity and gas tariffs, as well as legislation to restructure energy sector debt to ease the financial strain on power companies

The decline followed a subdued and range-bound performance on Monday, when the index closed nearly flat with a minor gain of 40.49 points. Trading that day had swung within a wide band of over 1,000 points.