The government has missed a major condition of the International Monetary Fund (IMF) as the quarterly tax collection fell short of the official target by Rs198 billion, reinforcing that tinkering with tax rates can no more increase revenues.
Against the July-September target of Rs3.083 trillion, the Federal Board of Revenue (FBR) collected Rs2.885 trillion, according to senior FBR officials. It suffered a shortfall of Rs198 billion within a span of just three months despite launching multiple initiatives, including a heavily funded FBR transformation plan.
The quarterly tax collection was also Rs138 billion less than the IMF’s conservative target of Rs3.023 trillion, affirming that the FBR remains the weakest link in the government’s efforts to stabilise the economy.
The filing of income tax returns also remained slow. As per the law, the last date to file returns is September 30, until extended by the FBR. Against total tax returns of 7.7 million filed for tax year 2024, the FBR received a little over 4 million till the first deadline to submit the annual income tax returns along with wealth statements.
The FBR claimed that the returns were still better by about 450,000 compared to September last year. It received Rs80 billion in income tax along with the returns, which was about Rs18 billion less than the money received with returns till September 30 last year.
The FBR had no option but to give a 15-day extension in the date for filing tax returns to bring the number close to last year’s level of 7.7 million.
It has applied every approach including the introduction of unpopular categories like non-filers, late filers and tried to restrict major economic transactions by ineligible persons. Yet, it could not convince the 7.7 million filers of 2024 to timely submit their returns.
Against the monthly target of Rs1.384 trillion, the FBR collected Rs1.229 trillion till the end of September, according to the provisional figures. The single-month shortfall was Rs155 billion.
The first-quarter collection was only Rs328 billion, or nearly 13%, higher than the last fiscal year, which was far lower than the required pace. The slow momentum in the initial months may complicate matters for the FBR, which in the last fiscal year missed the annual target by Rs1.2 trillion.
Last week, the FBR admitted in a meeting with the IMF that it would miss the tax target due to delay in settling court cases, low inflation and low economic growth. However, the court cases are often the result of discriminatory and legally questionable changes in tax laws.
During the kick-off meeting for the second programme review, IMF Mission Chief Iva Petrova asked to share the impact of the FBR’s transformation plan, while ruling out any adverse impact of floods on revenue collection.
The government has set the annual target of Rs14.13 trillion for the current fiscal year, which requires 20% increase over last year. The FBR had placed its bets on the improvement in enforcement measures and the recovery of taxes stuck in litigation.
Finance Minister Muhammad Aurangzeb had said in the post-budget press conference that if parliament did not approve the enforcement measures, the government might have to take additional revenue measures in the range of Rs400 billion to Rs500 billion. However, parliament approved all proposals with minor tinkering but these were later reversed after the business community took to the streets.
Tax breakdown
Tax authorities collected Rs1.363 trillion in income tax and missed the three-month target by Rs96 billion. The growth in income tax collection was 11%, or Rs138 billion, compared to a year ago.
Sales tax collection amounted to Rs1.02 trillion, around Rs122 billion less than the target. Still, the collection was higher by Rs114 billion, or 13%, over last year. Federal excise duty collection reached Rs190 billion, exceeding the target by Rs2 billion.
Similarly, customs duty collection jumped to Rs312 billion, higher by Rs17 billion than the monthly target. It rose 13% despite a reduction in import taxes in the budget.
There were concerns that the reduction in the regulatory duty limit may impact revenues at the import stage. So far, the Customs Department has performed better than its sister organisation, the Inland Revenue Service.
The FBR could not achieve its monthly target of Rs1.383 trillion and tax receipts remained at Rs1.229 trillion. The growth was hardly 11%, despite low refund payments. Against refunds of Rs147 billion last year, the FBR refunded Rs157 billion in the first quarter of FY26.
