IMF May Push Pakistan for New Tax Measures as Revenue Shortfall Widens

The International Monetary Fund may call for new contingency tax measures in Pakistan if the country’s revenue collection continues to lag targets in the second quarter of the current fiscal year, according to people familiar with ongoing policy talks. Pakistan’s Federal Board of Revenue (FBR) collected Rs 2.89 trillion in the first quarter of fiscal 2025-26, falling short of its Rs 3.08 trillion target by Rs 198 billion, officials told ProPakistani. September’s collection also missed the mark, with Rs 1.23 trillion raised against a target of Rs 1.37 trillion. The shortfall has raised concerns that the FBR could miss its ambitious annual tax target of Rs 14.13 trillion by more than Rs 400 billion, potentially forcing a downward revision. While discussions on revising the target are underway, no final decision has been made. Finance Minister Muhammad Aurangzeb has ruled out the possibility of a mini-budget for now, saying no new tax measures are currently under consideration. “Till now, no work on new taxation measures has been started in the FBR,” a senior official said. The FBR is instead focusing on reforms to boost capacity and enforcement, including hiring 1,600 new auditors and rolling out digital production monitoring in key sectors such as sugar, fertilizer, cement, beverages, tobacco, poultry, and textiles. The agency is also integrating data sources and digitalizing processes to better track economic activity and identify tax evaders, with plans to use AI-driven risk parameters for audit selection. These reforms have helped lift Pakistan’s tax-to-GDP ratio from 8.8% in 2023-24 to 10.24% in 2024-25, according to FBR data. Enforcement revenue has increased eightfold year-on-year, and the new Faceless Customs Appraisement initiative has boosted revenue per goods declaration by 17.3%. Still, the IMF remains concerned about the risk of a persistent revenue gap. In its latest review under the Stand-By Arrangement, the Fund highlighted eight contingency measures previously agreed with Pakistan, which could be triggered if collections continue to fall short. These include raising the sales tax on textiles and leather, imposing a federal excise duty on sugar, and increasing various advance and withholding taxes on imports, supplies, services, and contracts.