Tax collection shortfall challenge: IMF likely to stipulate new steps

ISLAMABAD: The International Monetary Fund (IMF) may propose new contingency revenue measures in case a shortfall in tax collection of the Federal Board of Revenue (FBR) continues in the second quarter of 2025-26.

Official sources told Business Recorder that the issue of revenue shortfall of the FBR was discussed threadbare during the ongoing policy-level talks between the Pakistani authorities and the IMF review mission.

The FBR has informed the IMF that the FBR has collected Rs 2,885 billion during the first quarter (July-September) 2025-26 against the assigned target of Rs 3,083 billion, reflecting a shortfall of Rs 198 billion. The FBR has collected Rs 1230 billion during September 2025 against the assigned monthly target of 1368 billion, reflecting a shortfall of Rs 138 billion.

July-September 2025-26: FBR misses collection target by Rs197bn

According to sources, FBR could face a revenue shortfall of more than Rs400 billion during 2025-26, which may result in a downward revision of the tax collection target.

The government had fixed a Rs14.13 trillion tax collection target for the FBR. However, the shortfall during the first quarter (July-September) 2025-26 stood at Rs198 billion.

There are discussions on the downward revision in the FBR’s annual target for 2025-26. However, no final decision has been taken in this regard.

Finance Minister Muhammad Aurangzeb had ruled out the possibility of a mini-budget, asserting that no additional tax or revenue measures are under consideration at present.

“Till now no working on new taxation measures has been started in the FBR”, a senior FBR officials said.

The FBR has further informed that the reforms are focused on increasing the capacity of the department by increasing the workforce, for example, around 1600 auditors are being hired in order to increase the audit capacity of the institution. The FBR has introduced digital production monitoring in key sectors like sugar, fertilizer, cement, beverages, tobacco, poultry, textile, etc.

The Transformation Plan is also focusing on the integration of data sources and digitalization of processes, which will make it possible to link economic activity to filing of tax returns, enabling the department to reach the tax evaders and plugging the tax gap. It will also make it possible to select taxpayers for audit through AI-driven risk parameters. Participants were informed that the interventions based on technology aim to make the FBR more transparent and accountable.

The ongoing transformation plan has successfully increased the FBR tax-to-GDP ratio from 8.8 percent in 2023-24 to 10.24 percent in 2024-25. The initiative of Faceless Customs Appraisement, which is still in its initial phase, has been able to improve revenue per GD by 17.3 percent.

The FBR has increased the tax revenue by strengthening tax enforcement, and during 2024-25, the revenue generated by enforcement has increased eight times compared to the previous year.

The IMF, in its report titled “Second and final review under the Stand-By Arrangement (SBA)”,said that the eight contingency revenue measures agreed during the “First Review under the SBA”, having an annual revenue impact of Rs216 billion, are:

(i) Raise the sales tax rate for textiles and leather tier-1 from its reduced rate of 15 percent to the standard rate of 18 percent.

(ii) Implement a FED of Rs5 per kilogram on sugar.

(iii) Increase the advance income tax on the import of machinery by 1 percentage point.

(iv) Increase the advance income tax on the import of raw materials by industrial undertakings by 0.5 percentage points.

(v) Increase advance income tax on import of raw materials by commercial importers by 1 percentage point.

(vi) Increase withholding tax on supplies by 1 percentage.

(vii) Increase withholding tax on services by 1 percentage point.

(viii) Increase withholding tax on contracts by 1 percentage point.

Copyright Business Recorder, 2025