IMF Likely to Lower Pakistan’s Tax Collection Target for the Current Fiscal Year

The International Monetary Fund (IMF) is likely to revise down Pakistan’s revenue collection target to Rs. 12,480 billion in the current fiscal year, Rs. 490 billion less than the original target of Rs. 12,970 billion. It is likely that the lender will suggest the Revenue Division to reduce this fiscal year’s revenue target below Rs. 12.5 billion. The IMF will tell the finance ministry to either reduce government expenditures by Rs. 500 billion or introduce additional revenue measures like a mini-budget to collect more taxes. The government will decide on its course of action during policy-level talks set to begin next week. Tobacco industry representatives urged the IMF review mission on Wednesday to lower the Federal Excise Duty (FED) on cigarettes by 25 percent and introduce a third tax tier. They warned that sharp FED hikes had reduced tax-paying cigarette sales and led to rising illicit trade. The industry reported that tax collections from tobacco surged from Rs. 148 billion in 2021-22 to Rs. 277 billion in 2023-24 but are now projected to decline to Rs. 243 billion by June 2025 and further drop to Rs. 223 billion by 2026-27. FBR officials warned that approving the industry’s request could result in a Rs. 50 billion revenue loss. They attributed the decline in tax-paying cigarette volumes to increased smuggling and tax evasion, causing an estimated Rs. 300 billion ($1.1 billion) annual loss to the national exchequer. Despite FBR’s insistence that it can meet its original target by resolving pending tax cases in higher courts, IMF remains skeptical and expects challenges in the final quarter (April to June 2025).