ISLAMABAD:
The federal government has missed the International Monetary Fund (IMF)-dictated tax target by a wide margin of Rs610 billion, partly because of the Middle East conflict, as it could hardly pool Rs9.3 trillion during the first nine months of the current fiscal year.
The continued widening of tax shortfall against the budget and IMF’s targets comes following the lender’s refusal to grant any further relaxation in the annual goal.
The Federal Board of Revenue (FBR) received a little over Rs9.3 trillion in taxes for the July-March period of fiscal year 2025-26. There was a shortfall of about Rs610 billion compared to the target. The IMF has already refused to further slash the annual target of Rs13.98 trillion.
The nine-month increase in revenue collection was just 10%, which was half the rate needed to reach the annual target. The shortfall was as high as Rs805 billion when compared with the original target of Rs10.1 trillion for July-March FY26.
With the growing shortfall, it is unlikely that Pakistan will meet another core IMF condition of showing the annual primary budget surplus equivalent to 1.6% of GDP, or Rs2 trillion.
The IMF has now expanded its area of influence towards weak internal governance in the FBR and Pakistan has made new commitments during the third review talks with the lender.
It is the third consecutive quarter when the FBR missed its tax target. Earlier, it also missed half-year targets of net tax revenue collection and income tax recovery from retailers.
However, Finance Minister Muhammad Aurangzeb has assured the IMF that the government remains focused on implementing the revenue administration reforms to minimise the tax shortfall by the end of the current fiscal year. Nonetheless, there is no likelihood that the government will even come closer to the Rs13.98 trillion target.
The finance minister has also assured the IMF that for the remaining period of the fiscal year, the government will continue with prudent execution of the budget, including implementing necessary revenue measures to minimise the shortfall.
Tax authorities said that the Middle East conflict erased Rs100 billion revenue in March alone. They argued that due to gas supply disruptions, the fertiliser plants paid Rs35 billion less than the estimate for March.
Likewise, the authorities said that another Rs65 billion was lost at the import stage due to disruption caused by the closure of the Strait of Hormuz.
The FBR also paid Rs447 billion in tax refunds, including Rs61 billion in March, which was significantly higher than the previous month. The government is offsetting the tax shortfall with the increase in petroleum levy rates and by drastically reducing the development spending. This is done to achieve the overall primary budget surplus target agreed with the IMF, but the policy is giving an artificial sense of fiscal stability.
The IMF has linked the approval of the third review and the release of $1.2 billion loan tranches with the FBR’s ability to recover Rs322 billion in court cases. Tax authorities said that they had already recovered over Rs290 billion.
Details showed that the FBR collected Rs4.64 trillion worth of income tax in July-March FY26, missing the goal, but the receipts were 12% higher than last year. Sales tax collection amounted to a mere Rs3.1 trillion, behind the target by a huge margin. It was higher by 9% over last year. This poor performance was also because the FBR had taken sales tax in advance.
Federal excise duty collection reached Rs608 billion, which was 13% higher than the last fiscal year. The FBR faced more challenges at the import stage. Customs duty collection fell short of the target and stayed at Rs956 billion. The increase in customs duty receipts was hardly 3%, underscoring the impact of interruption in global supply lines.
The cumulative tax collection at the import stage was Rs356 billion during the first nine months of FY26, which was at last year’s level. Against the monthly target of Rs1.37 trillion, the FBR collected Rs1.182 trillion in March, missing the goal by Rs185 billion. The increase in the monthly collection was only 6%, or Rs67 billion, showing the significant impact of the war, which can spill over to April as well.
