Pakistan’s economic team held the second round of economic review talks with the International Monetary Fund (IMF), presenting detailed data on tax collection, fiscal performance, and revenue shortfalls.

The IMF expressed concern over Pakistan’s inability to meet the tax collection target set for the last fiscal year.

Tax collection shortfall

During the briefing, the Federal Board of Revenue (FBR) disclosed that it collected Rs11.74 trillion against the annual target of Rs12.97 trillion. Officials cited multiple reasons for the shortfall, including declining inflation, sluggish economic activity, devastating floods, and delays in court decisions on tax cases.

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More than Rs250 billion worth of tax cases remain pending in courts, further affecting revenue flows. The quarterly target of Rs3.1 trillion is also at risk, with officials warning that Rs140 billion would need to be collected daily to stay on track.

Reasons behind missed targets

FBR officials explained that last year’s tax-to-GDP ratio target of 10.5% could not be achieved, with only a 1.4% increase recorded. They attributed this underperformance to multiple factors:

A slowdown in the real estate sector reduced revenue from new tax measures.
Non-tax revenues declined sharply due to reduced profits from the State Bank and a lower petroleum levy.
Floods further weakened economic activity and revenue collection.

Progress and achievements

Despite challenges, officials highlighted some fiscal achievements. The government managed to achieve the highest primary surplus in 24 years, reaching Rs 2.4 trillion. The fiscal deficit was limited to 5.4% of GDP, performing better than the target set.

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Additionally, the number of income tax filers increased from seven million to 7.7 million compared to last year, reflecting an expanding tax base despite revenue challenges.

Provincial and NFC updates

The Ministry of Finance informed the IMF that provinces failed to meet their surplus budget commitments, collecting Rs280 billion less than the target. Officials also updated the Fund on progress made in restructuring the National Finance Commission (NFC). They assured that a new NFC meeting would soon be convened in consultation with the provinces to move the process forward.

IMF concerns and way forward

The IMF raised concerns over Pakistan’s inability to meet its Rs12.97 trillion tax target and the risks posed by pending tax cases and revenue shortfalls. With current fiscal challenges and ambitious quarterly targets ahead, the government is under pressure to accelerate reforms, boost tax collection, and strengthen coordination with provinces to stabilise the economy.

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A day ago, technical-level talks between Pakistan and the IMF began, with the government’s economic team starting initial data sharing. The discussions, led by the FBR chairman, focused on revenue collection progress and strategies to address possible shortfalls.

FBR briefs IMF on tax revenue progress

During the meeting, the FBR team updated the IMF mission on tax revenue performance in the current fiscal year. According to sources, a detailed briefing was given on the progress made toward revenue targets and the possible tax shortfall in the first quarter. The delegation also highlighted that recent severe floods had negatively impacted tax collection efforts.

Alternative plan to address shortfall

Officials shared that an alternative plan was being prepared to address potential revenue gaps. The IMF was also briefed on the progress of legislation aimed at expanding Pakistan’s tax net.

The FBR’s Member Land Revenue Operations and Member Legal participated in the talks, providing detailed updates on reforms and compliance measures.