In a strategic move to enhance revenue collection for the fiscal year 2024-25, the Federal Board of Revenue (FBR) has deliberately slowed down the disbursement of tax refunds. This decision comes as part of the FBR’s efforts to meet its ambitious tax collection targets and strengthen the country’s overall fiscal position amid ongoing economic challenges.
Sources from a tax office in Karachi revealed that the FBR, grappling with significant challenges in tax collection, has directed its regional offices to delay the processing of refunds for both sales tax and income tax categories. This temporary slowdown in refund disbursement is aimed at ensuring the FBR’s revenue figures remain higher and that the performance of tax collection appears improved. Although these actions are designed to boost immediate revenue figures, they have created concerns among businesses and taxpayers who rely on timely refunds to maintain their cash flow.
As of the period between July and February 2024-25, official data from a tax office shows that the total disbursement of refunds has dropped by 11% when compared to the same period in the previous fiscal year. This reduction in refunds has affected businesses across various sectors, especially exporters and industries that depend on refunds for their financial liquidity. Taxpayers, particularly those in export-oriented industries, have raised concerns over how this delay will affect their operations, given that timely refunds are crucial for maintaining smooth business operations.
The FBR’s decision to slow down refunds aligns with its strategy to improve revenue figures, particularly as Pakistan’s government is under pressure to meet tax collection targets. These measures are also in response to the International Monetary Fund’s (IMF) demands for stronger tax collection performance. However, given the substantial targets for the current fiscal year, Pakistani authorities have requested the IMF to revise these goals downward to account for the challenges in meeting the initially set targets.
Sources suggest that the IMF has agreed to reduce the FBR’s tax collection target for FY25 from Rs 12,970 billion to a revised range of Rs 12,332 to Rs 12,334 billion. This adjustment reflects the difficulties posed by Pakistan’s economic conditions, including slow growth and inflationary pressures that have affected businesses’ ability to contribute to tax revenues.
In addition to the tax collection target revision, the FBR had initially set a tax collection target of Rs 1,220 billion for March 2025. However, with the added public holidays for Eid ul-Fitr, the FBR requested a reduction of Rs 70 billion for the month. The IMF has granted this request but has insisted that the FBR ramp up its tax collection efforts in April and May 2025 in order to meet the revised target of Rs 12,334 billion by June 2025.
Despite these adjustments, businesses continue to urge the FBR to expedite the release of their tax refunds, stressing the importance of a balance between the need to collect revenue and the need to provide financial relief for businesses struggling with cash flow issues. The delay in tax refunds has placed additional strain on industries already grappling with high operational costs, creating an ongoing challenge for both the FBR and the businesses it serves.
While the slowdown in refunds is seen as a short-term solution to ensure better revenue figures, it raises questions about the long-term impact on the business environment and the broader economy. The FBR will need to find ways to balance its revenue targets with the financial needs of businesses to ensure the sustained growth of Pakistan’s economy in the coming months.