‘FBR’s revenue shortfall reflects deep structural fiscal issues’

KARACHI: Mian Zahid Hussain, President Pakistan Businessmen and Intellectuals Forum & All Karachi Industrial Alliance, Chairman National Business Group Pakistan, Chairman Policy Advisory Board FPCCI, said that the Federal Board of Revenue’s (FBR) major revenue shortfall in Q1 of FY26 was approximate Rs 198 billion.

This quarterly miss reflects Pakistan's deep structural fiscal issues, not just a temporary setback but places severe pressure on the government.

He noted that while the July target was successfully met, with collections amounting Rs. 754 billion against target of Rs. 748 billion. In August, collections fell short by Rs. 64 billion and in September by Rs. 138 billion, leading to a total Q1 collection of Rs. 2,885 billion against a target of Rs. 3,083 billion.

Mian Zahid Hussain however appreciated the FBR’s efforts and further explained that although the income tax target for Q1 was missed by Rs. 96 billion, FBR's efforts resulted in 11% increase compared to last year. Similarly, the sales tax target fell short by Rs. 122 billion, but collections were 13% higher year-on-year, while customs duties posted a surplus of Rs. 17 billion, due to a rise in imports.

However, he cautioned that this increase in imports, while boosting customs revenue, has exerted additional pressure on the current account deficit, underscoring the need for import substitution, and adoption of consistent business friendly policies to stabilize Pakistan’s fiscal trajectory.

Hussain emphasized that the revenue shortfall confirms the persistent failure to widen the tax base, a structural issue that undermines the entire fiscal sustainability effort. The most damning evidence, he pointed out, is the widespread non-compliance amongst the affluent. "It is a disgrace that a large number of tax returns filed up to late September 2025 declared zero taxable income, even as the individuals exhibit affluent lifestyles," he asserted.

"This level of non-compliance severely threatens our ability to meet the fiscal benchmarks required by the IMF program." To address this, Hussain noted that harassment measures cannot solve the crisis without systemic changes.

The financial gap created by the Q1 shortfall is compounded by the need for unfunded flood-related expenditure and the failure of provincial governments to deliver their promised budget surpluses to the Federal Government.

This critical situation coincides with the ongoing technical-level talks for the IMF's Second Review under the 37-month, US$ 7 billion Extended Fund Facility (EFF).

"The stakes are now perilously high," concluded Mian Zahid Hussain, "Should the required additional revenue not materialize immediately; the government faces a severe risk”.

We could be forced to impose mid-year emergency taxation to ensure compliance with the IMF performance benchmarks. This action would be detrimental to industry and the public, proving that the burden of widespread tax evasion will ultimately be borne by those who already comply."

Copyright Business Recorder, 2025