Pakistan’s FBR Revenue misses FY26 tax targets by Rs42 billion in July-August, raising concerns over fiscal stability. On Saturday, August 30, 2025, the Federal Board of Revenue (FBR) reported a Rs42 billion shortfall in tax collection for July and August of fiscal year 2026 (FY26), collecting Rs1.657 trillion against a target of Rs1.699 trillion. This gap, attributed to economic slowdown and weak enforcement, signals challenges for Pakistan’s fiscal goals under the International Monetary Fund (IMF) programme.
Why it Matters
The shortfall threatens Pakistan’s ability to meet IMF conditions, potentially impacting loan disbursements and economic stability.
FBR Revenue Gap: Key Factors Behind the Shortfall
The FBR revenue gap stems from multiple structural and economic issues. A significant factor is the economic slowdown, with reduced electricity consumption and sluggish industrial activity impacting tax receipts. Revenue from electricity bills dropped to Rs86 billion from Rs125 billion in the previous fiscal year, contributing heavily to the shortfall. Additionally, lower-than-expected imports, compressed from USD 55 billion to USD 53 billion, have reduced customs duties and sales tax collections at the import stage.
The FBR’s internal inefficiencies, including outdated technology and bureaucratic processes, have also hindered effective tax management. Allegations of political interference in tax enforcement have compromised the agency’s independence, exacerbating the revenue gap. The limited tax base, with only 6.2 million tax filers and 43.3% reporting zero taxable income, places a disproportionate burden on existing taxpayers, particularly the salaried class.
Tax Collection Pakistan: Performance Across Tax Heads
Despite the shortfall, some tax categories showed growth. Income tax collection reached Rs710 billion, exceeding the target of Rs696 billion by Rs14 billion, marking an 18% increase from Rs603 billion last year. Customs duties amounted to Rs202 billion, surpassing the target by Rs10 billion with a 19% year-on-year growth. However, sales tax collection fell short by Rs61 billion, reaching Rs631 billion, and federal excise duty (FED) missed its target by Rs4 billion, collecting Rs115 billion. These figures reflect uneven performance in tax collection in Pakistan, with income tax outperforming while sales tax and FED lag.
FBR Enforcement Measures: Steps to Bridge the Gap
To address the shortfall, the FBR has introduced several enforcement measures. The agency is intensifying scrutiny of high-net-worth individuals and businesses suspected of tax evasion. A new digital taxation framework, including real-time transaction tracking and cargo monitoring systems, aims to plug loopholes and enhance compliance. The FBR is also focusing on e-commerce, raising the withholding tax rate on digital transactions from 1% to 2% and mandating online marketplaces to collect sales tax.
The government’s budget for FY26 includes Rs1.05 trillion in additional revenue measures, comprising Rs655 billion in new taxes and Rs400 billion through enhanced enforcement. Anti-smuggling technologies and efforts to tax under-taxed sectors, such as retailers and landlords, are also underway. However, punitive provisions related to property and car purchases may face parliamentary resistance, potentially delaying implementation.
Background
Pakistan’s tax system has long faced criticism for its low tax-to-GDP ratio, recorded at 10.8% in Q2 FY25, well below the IMF’s target of 13.6%. The narrow tax base and reliance on regressive taxes, such as sales tax on essential goods like milk and vegetables, have burdened the salaried class while under-taxed sectors like retail and real estate evade scrutiny. The FBR’s FY26 revenue target of Rs14.131 trillion requires a 19% increase over the previous year, a goal made challenging by economic headwinds and enforcement gaps.
Outlook for FBR Revenue Shortfall in Pakistan
The FBR remains optimistic about narrowing the revenue gap through digital monitoring and stricter enforcement. However, tax analysts warn that the shortfall could widen to Rs1 trillion by the end of FY25 if current trends persist. The upcoming IMF review will assess Pakistan’s progress, with the FBR revenue shortfall in Pakistan potentially jeopardizing loan disbursements. Continued efforts to broaden the tax base and reduce evasion will be critical to achieving fiscal stability.
Published in SouthAsianDesk, August 31st, 2025
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