The job and targets of the FBR

EDITORIAL: The FBR’s job and targets are becoming increasingly challenging due to price and supply chain disruptions in the aftermath of the Iran-US war. Already, the FBR is Rs648 billion behind target in 10MFY26.

The petroleum levy is also likely to fall short of target, not only because the government is not fully passing the impact of higher oil prices on to consumers, but also because consumption is declining due to the massive price increase.

Economic momentum had been steadily building, with GDP growth crossing 4 percent in two quarters and LSM performing reasonably well. Now, that momentum is losing steam while expenditure continues to grow. As a result, the IMF’s fiscal quantitative targets, especially the tax-related indicative targets, are becoming harder to meet.

Although imports in April stood at USD 6.5 billion — the highest in 46 months — tax collection at the import stage performed poorly in the same month. Sales tax and FED collection recorded negative growth in April. The impact of the conflict is reportedly estimated at Rs40 billion in tax collection losses, including a Rs15 billion shortfall from gas imports. The government also lacks enforcement capacity. The Prime Minister has directed the FBR to double its collection through enforcement measures in FY27 to Rs778 billion. Already, FBR pressure — undue in some cases — is being felt by the business community across the board. Some call it ‘harassment’, while others term it ‘extortion’.

The FBR’s skewed focus remains on the top 5 percent, as it is increasingly relying on retrospective super tax collections, with court decisions coming in favour of the tax authority. This disincentivises capital formation at a time when investment-to-GDP is already at a multi-decade low. The government must lower taxes, especially the super tax and the multiple layers of taxation on dividends within corporate structures. This debate has been going on for months. The government had made a soft commitment to the business community to lower taxation on firms and salaried individuals in a staged manner. Now, the FBR is in a fix, as this year’s targets are not being met.

Earlier, the thinking was that oil prices were coming down — moving from USD 75 per barrel in FY25 to an average of USD 67 per barrel in Jul-Feb, a decline of around 10 percent. Expectations were that oil would hover around USD 60 per barrel, if not lower. The government’s plan was to double the petroleum levy, ride the lower-oil-price bonanza, and meanwhile reduce income taxes to create a feel-good factor.

However, the war has completely changed the scenario. Unfortunately, there is no ‘Plan B’. The government’s best bet is to secure some waivers from the IMF due to the country’s geopolitical leverage. At the same time, it is increasing the petroleum levy in a staggered manner to bring it back to pre-war levels.

Still, lower consumption will keep fiscal revenues short, putting more pressure on the FBR to squeeze the existing tax base. There is now limited chance of any meaningful reduction in corporate and salaried taxes next year. At best, there may be a marginal decline in super tax and surcharge. The fear is that the FBR may introduce new measures and tweaks to raise rates here and there. That would only push economic growth further away. There is no easy choice.

Copyright Business Recorder, 2026