Pakistan has recorded improvements in tax collection and government revenue, but concerns remain over the structure of its taxation system, the distribution of the tax burden and the sustainability of its fiscal strategy. In an editorial published on October 21, 2026, Business Recorder examined the country’s recent fiscal performance and the challenges associated with increasing revenue under the ongoing International Monetary Fund (IMF) programme. The discussion highlighted questions surrounding the measurement of Pakistan’s tax-to-Gross Domestic Product (GDP) ratio, the reliance on indirect taxation and the need to broaden direct tax collection. Although revenue mobilisation has improved, the editorial argued that lasting fiscal progress will require reforms that distribute the tax burden more fairly and encourage stronger economic growth.
The World Bank evaluated its $700 million technical assistance programme, Public Resources for Inclusive Development – Multiphase Programmatic Approach (PRID-MPA), as moderately satisfactory on June 19, 2025. The programme contains several components, including support for public resource mobilisation. However, the editorial questioned how the assessment applied to the component intended to increase Pakistan’s tax-to-GDP ratio. The target was to raise the ratio from 10.3 percent in June 2025, based on Federal Board of Revenue (FBR) collections, or approximately 12.3 percent when federal and provincial tax receipts were combined, to 15 percent by the end of June 2030. The editorial noted that the methodology behind the combined figure was not entirely clear, particularly regarding the treatment of petroleum levy collections and non-tax revenue.
One issue concerns the classification of petroleum levy receipts, which are treated separately from ordinary tax collections and are not part of the divisible pool under the National Finance Commission award. The editorial questioned whether these receipts were included in the combined federal and provincial figures used to assess progress towards the tax-to-GDP target. It also raised uncertainty over whether non-tax revenue had been added to the calculation, which would affect the interpretation of the reported ratio. Clear distinctions between tax revenue and non-tax revenue are important when assessing the effectiveness of tax reforms, as the two categories represent different sources of government income and do not necessarily demonstrate the same degree of improvement in tax compliance or the expansion of the tax base.
Pakistan’s Economic Survey for 2024-25 reported a substantial increase in government revenue as a share of GDP. Total revenue rose to 15.8 percent of GDP in fiscal year 2025, compared with 12.6 percent in fiscal year 2024. Tax revenue increased to 11.2 percent of GDP from 9.6 percent, while non-tax revenue rose to 4.6 percent from 3.0 percent. These figures indicated stronger domestic resource mobilisation, although the increase in total revenue reflected improvements in both tax and non-tax receipts. The editorial separately noted that FBR collections were estimated at 10.3 percent of GDP by the end of June 2026, representing an improvement compared with previous years. Distinguishing these measures is essential because the overall revenue ratio, the tax-to-GDP ratio and the FBR’s own collections measure different aspects of public finances.
The editorial also linked Pakistan’s constrained economic growth to the tight fiscal policies associated with the ongoing IMF programme. The programme places emphasis on increasing annual revenue and maintaining a sustainable budget deficit, requiring the government to strengthen collection efforts while managing public expenditure. However, the editorial argued that policies aimed at rapidly increasing revenue can create additional pressure on consumers and businesses when they rely heavily on indirect taxes. It highlighted the sales tax collected at the factory level on sugar, cement and fertilisers, noting that the cost can be passed on to consumers through higher prices. According to the editorial, such measures can contribute to inflationary pressures and worsen affordability for households already facing economic difficulties.
Poverty remains a central concern in this debate. The editorial cited a World Bank estimate placing Pakistan’s poverty rate at 44.7 percent and argued that the consequences of taxation policies need to be considered alongside revenue targets. When taxes are imposed on essential goods and production inputs, their effects can extend beyond the businesses responsible for paying them initially. Higher production costs may be reflected in retail prices, affecting household purchasing power and the cost of economic activity. The editorial maintained that stronger economic growth could also help improve government revenue by expanding incomes, consumption and business activity. This creates a policy challenge for the government as it seeks to meet ambitious fiscal commitments without placing excessive pressure on economic activity and lower-income households.
External developments have added further uncertainty to the government’s revenue planning. The editorial noted that the ongoing crisis in the Middle East had reduced the reliability of revenue expectations based on import tariffs. Such external pressures can affect trade flows, import volumes and the collection of duties, making it more difficult to meet budgeted targets. In response, the FBR has faced greater pressure to increase receipts through enforcement and existing tax measures. However, the editorial argued that this approach risks concentrating fiscal adjustments on the expansion of established taxes, particularly indirect taxes, rather than developing a broader system based on taxpayers’ ability to pay.
Agricultural income taxation was identified as another area requiring attention. Although agricultural income tax falls under provincial jurisdiction, the editorial argued that collections remain low because of political considerations. Limited receipts from this sector contrast with rising tax contributions from salaried individuals, whose income is generally easier to document and tax through formal employment arrangements. This imbalance raises questions about the distribution of tax responsibilities across different income groups and economic sectors. Improving agricultural income tax collection would require effective provincial implementation, stronger administrative capacity and consistent enforcement within the applicable legal framework.
The editorial further called for changes in the treatment of withholding taxes, arguing that the government should stop crediting certain withholding taxes levied as sales tax under direct taxes. It referred to the Auditor General of Pakistan’s recommendation against this practice and emphasised the importance of accurately classifying revenue according to its actual nature. Transparent accounting and consistent reporting can help policymakers assess which tax categories are generating revenue and whether reforms are improving the overall structure of collection. Without clear classification, headline revenue figures may not fully reveal the extent to which the tax system is becoming more balanced.
Pakistan’s fiscal performance therefore presents two related challenges: increasing revenue and improving the way that revenue is collected. Higher receipts can support budget management and reduce pressure on public finances, but the long-term effectiveness of fiscal policy also depends on economic growth, administrative efficiency and a fair distribution of tax obligations. The editorial called for structural reforms that strengthen direct taxation, improve agricultural income tax collection and reduce excessive reliance on indirect taxes. As Pakistan continues to pursue its revenue targets under the IMF programme, the effectiveness of its fiscal strategy will depend not only on meeting numerical commitments but also on building a tax system that supports economic activity, improves compliance and distributes the burden more equitably.
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