Weak enforcement fuels illicit trade, undermines revenue targets

LAHORE: Pakistan’s struggle to meet its fiscal targets is predominantly fuelled by an expanding shadow economy rather than general economic frailty, as the absence of effective, country-wide targeted enforcement, particularly at the provincial level, continues to hurt the economy.

According to the latest data, the Federal Board of Revenue (FBR) recorded a massive shortfall of Rs 331 billion during the first half of fiscal year 2025-26. The FBR collected Rs 6.159 trillion against a projected target of Rs 6.490 trillion. This gap was primarily driven by lower domestic sales tax and income tax receipts, with sales tax alone falling Rs 172 billion short of its goal.

Experts point out that sectors such as real estate, tobacco, pharmaceuticals, tea, and tyres continue to operate largely outside the documented framework, shifting the tax burden onto a narrow base of compliant taxpayers.

The impact is most visible in the tobacco sector, where illicit products account for more than half the market, costing the national exchequer over Rs 415 billion annually. While the government’s budget for FY26 relies on Rs 400 billion through enhanced enforcement, the weak implementation of the Track and Trace System across industries serves as a clear indicator of limited institutional resolve.

Without a shift from isolated retail checks to coordinated, nationwide enforcement at the production and distribution levels, experts warn that the shortfall could continue to widen.

Macroeconomic analyst Osama Siddiqui emphasized that a sustainable fiscal future depends on shifting policy away from repeatedly taxing the compliant, terming the Rs 330 billion shortfall a wake-up call that- technology like Track and Trace- cannot work in a vacuum.

Copyright Business Recorder, 2026