Pakistan’s fiscal position has come under renewed strain as the Federal Board of Revenue (FBR) recorded a tax shortfall of Rs450 billion against the downward revised target for the first eight months of fiscal year 2025-26, intensifying the likelihood of another target revision during ongoing engagements with the International Monetary Fund (IMF).
According to provisional figures available until the last working day of February, the FBR collected slightly under Rs8.1 trillion in taxes for the July-February period. Even after the government lowered the original annual target, the revenue body fell Rs450 billion short of the revised benchmark. Compared to the initial target of Rs14.13 trillion set at the beginning of the fiscal year, the gap has widened to Rs670 billion, underscoring persistent weaknesses in revenue mobilization despite additional fiscal measures introduced earlier.
The annual target was reduced by Rs216 billion following the second IMF review. However, sources indicate that the FBR has proposed another significant downward revision, which is expected to be discussed with the IMF next week. The development comes amid indications from IMF officials that immediate expansion of the tax base may not be feasible under prevailing structural constraints.
To manage the widening fiscal gap, the government has relied on increasing petroleum levy rates and sharply curtailing development spending in order to maintain the primary surplus target agreed with the IMF. While this approach has helped contain headline deficit numbers, analysts suggest it creates a temporary appearance of fiscal stability rather than addressing structural revenue challenges.
During recent meetings with the IMF delegation, multinational corporations and leading domestic firms raised concerns over the competitive imbalance created by tax-evading sectors. Participants said IMF Mission Chief Iva Petrova acknowledged that broadening the tax base in the short term was unlikely. The Fund also appeared supportive of shifting a Rs50 billion tax collection target from traders to the broader retail sector, while the salaried class continues to shoulder a significant share of direct taxation.
On the opening day of talks, the IMF requested updated revenue projections for the remaining months of the fiscal year. A separate session is planned to assess weaker-than-expected performance in income tax and sales tax collection.
Of the Rs8.1 trillion collected so far, Rs125 billion came through the super tax. Officials noted that had the Federal Constitutional Court not ruled in favor of the FBR in January, total collections would have fallen below Rs8 trillion. Even so, sources suggest the net impact of the judgment may be smaller than the FBR’s earlier estimate of Rs216 billion, particularly since some super tax had already been collected in advance.
With the shortfall widening, the State Bank of Pakistan (SBP) directed commercial banks to remain open on Saturday, marking the third consecutive month such instructions have been issued to facilitate last-minute revenue collection efforts. Critics argue that in a robust tax administration system, extraordinary banking hours would not be required to offset revenue gaps.
Despite institutional incentives, including the distribution of 1,000 vehicles and salary increases of up to 400% for officers, FBR performance has not improved in line with targets. Musharraf Rasool Cyan, technical member of the National Finance Commission from Khyber-Pakhtunkhwa, stated this week that cumulative collections since the 2010 NFC Award fell Rs63 trillion short of agreed benchmarks. The framework envisioned raising the tax-to-GDP ratio by one percentage point annually to reach 15% by 2015, yet it stood at 10.2% last fiscal year.
A breakdown of collections shows income tax reached Rs3.94 trillion against a reduced target of Rs4.1 trillion, missing by Rs160 billion despite 15% year-on-year growth. Sales tax generated Rs2.8 trillion, Rs322 billion below target, although 11% higher than last year. Officials attribute part of the sales tax gap to the advance collection mechanism now in place.
Federal excise duty reached Rs531 billion, exceeding the revised target by Rs6 billion and reflecting 17% annual growth. Customs duty collections stood at Rs850 billion, Rs49 billion below target. Refund payments totaled Rs385 billion, Rs33 billion higher than the previous fiscal year.
For February alone, the FBR collected Rs918 billion against a target of Rs1.03 trillion, leaving a shortfall exceeding Rs100 billion. Even with an anticipated Rs25 billion collection through extended banking hours, the monthly deficit is expected to remain around Rs85 billion, reinforcing pressure on fiscal managers ahead of crucial IMF deliberations.
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