ISLAMABAD: The Federal Board of Revenue (FBR) has exceeded its revenue collection target for the first quarter (July-September) of fiscal year 2026-27, provisionally collecting Rs3,083.5 billion against the target of Rs3,053 billion, despite abolition of Super Tax, reduction in withholding tax on properties, income tax rates for salaried class and other tax relief measures introduced through Finance Act 2026.
The provisional figures showed that net tax collection increased by around seven percent compared with Rs2,889 billion collected during the corresponding period of the preceding fiscal year.
The FBR collected approximately Rs30.5 billion more than its quarterly target. Gross collection, before payment of refunds, stood at Rs3,286.7 billion against the target of Rs3,047 billion, reflecting an increase of around eight percent. The quarterly and September revenue targets were both exceeded by approximately one percent.
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September, the final and highest-revenue month of the quarter, contributed Rs1,360.7 billion to net collection against the monthly target of Rs1,343 billion. The collection was around 11 percent higher than Rs1,229 billion collected in September last year, demonstrating an improvement in revenue mobilisation during the month.
The revenue performance was achieved alongside an increase in tax refunds, indicating that the collection figures were not supported by withholding payments owed to taxpayers.
The FBR paid Rs203.2 billion in refunds during the first quarter against Rs159 billion in the corresponding period last year, an increase of around 28 percent. Sales tax refunds increased from Rs112 billion to Rs130 billion, while income tax refunds rose from Rs32 billion to Rs51 billion. In September alone, refunds amounted to Rs47 billion against Rs35 billion a year earlier.
The first-quarter performance reflects the impact of the tax relief measures introduced in the budget passed in June, which reduced income tax rates for salaried individuals and eased the super tax burden on certain businesses, without imposing a comparable package of new taxes.
For salaried taxpayers, the income tax rate on annual income between Rs2.2 million and Rs3.2 million was reduced from 23 percent to 20 percent. The rate on income between Rs3.2 million and Rs4.1 million was lowered from 30 percent to 25 percent, while the rate on income between Rs4.1 million and Rs5.6 million was reduced from 35 percent to 29 percent. The 35 percent top rate, previously applicable to income exceeding Rs4.1 million, now applies to income above Rs7 million. The nine percent surcharge on salaried income exceeding Rs10 million was also abolished.
The budget further removed super tax slabs on business incomes between Rs150 million and Rs500 million and reduced the rate applicable to income exceeding Rs500 million from 10 percent to eight percent for most sectors. Withholding tax rates on property transactions were also reduced. These measures affected income tax deductions from salaries, advance tax payments by companies and withholding tax collection on property transactions from July 1.
Consequently, income tax collection, the largest component of federal tax revenue, increased by around five percent to Rs1,437 billion during the first quarter from Rs1,365 billion in the corresponding period last year. However, collection remained slightly below the head-wise target. The increase came despite lower tax rates and higher income tax refunds, with officials attributing the performance to an expansion in the tax base and improved compliance.
Sales tax drives revenue growth
Sales tax emerged as the principal contributor to the increase in overall tax collection during the quarter. Net sales tax collection rose by 11 percent to Rs1,137 billion from Rs1,020 billion a year earlier, exceeding the relevant target by approximately eight percent. Gross sales tax collection, before refunds, increased by 12 percent to Rs1,266 billion from Rs1,131 billion.
Of the approximately Rs194 billion increase in net tax collection over the corresponding period last year, sales tax contributed around Rs117 billion, accounting for approximately 60 percent of the overall increase, while income tax contributed about Rs72 billion. Officials have attributed the stronger sales tax performance to enforcement measures and digital monitoring of production and sales activities.
Federal excise duty collection increased by three percent to Rs197 billion, broadly in line with the target. Customs duty collection stood at Rs312 billion, remaining broadly unchanged from the preceding year’s level and marginally below the target. The first-quarter results come as the FBR enters the third year of its transformation drive initiated under Prime Minister Shehbaz Sharif. The prime minister approved the FBR transformation plan in October 2024 and has since chaired periodic meetings to review its implementation and revenue performance.
During the first year of the plan, fiscal year 2024-25, Pakistan’s tax-to-GDP ratio increased from 8.8 percent to 10.3 percent, crossing the 10 percent threshold for the first time in more than a decade. The number of income tax return filers increased from 4.5 million to more than 7.2 million by June 2025. A faceless assessment system was also introduced in customs as part of the wider reform effort.
In fiscal year 2025-26, the FBR collected more than Rs13 trillion, exceeding the revised target of Rs12.957 trillion, while paying Rs600 billion in tax refunds. Enforcement measures generated Rs389 billion during the year, and the prime minister has set a target of Rs778 billion from enforcement for the current fiscal year.
The prime minister has emphasised that meeting revenue targets alone is not sufficient, stressing the need for a modern and sustainable tax system. The current revenue performance will therefore be assessed not only in terms of collection but also against progress in broadening the tax base, improving compliance and strengthening enforcement.
The extension in the return-filing deadline is expected to increase the number of returns further. The rise in filings, particularly among non-salaried individuals, is significant for the FBR’s efforts to bring previously under-documented economic activity into the tax system and improve voluntary compliance.
Despite exceeding the first-quarter target, the FBR faces a substantial collection requirement during the remaining nine months of fiscal year 2026-27. The annual revenue target stands at Rs15.264 trillion, while the first-quarter net collection represents approximately one-fifth of that amount. Sustaining the current pace will depend on the achievement of progressively higher quarterly targets, improved income tax collection as return filing and company tax payments continue, and the effectiveness of enforcement measures.
The increase in sales tax has provided the principal support to revenue growth so far, while income tax collection has remained comparatively subdued following the rate reductions. Officials are expected to continue focusing on action against tax evasion, digital monitoring of production and sales, integration of information across government agencies and timely payment of refunds. The objective is to strengthen revenue mobilisation through a broader tax base and improved compliance rather than relying exclusively on higher tax rates.
The figures are provisional and will be finalised after the accounts for the first quarter are closed, FBR officials added.
Copyright Business Recorder, 2026
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