IMF Presses Pakistan on Delayed Tax Cases and Missed Revenue Targets

The International Monetary Fund (IMF) has raised concerns over Pakistan’s persistent delays in resolving more than Rs. 170 billion worth of tax cases pending before the Supreme Court’s Constitutional Bench, as well as the country’s failure to meet last year’s tax collection targets. On Thursday, as talks began in Islamabad to finalize measures for the second review of Pakistan’s IMF program and the release of a $1 billion loan tranche, Fund officials zeroed in on the Federal Board of Revenue’s (FBR) chronic litigation backlog and revenue shortfalls. According to officials familiar with the discussions, the IMF’s primary focus was on understanding the reasons behind the missed targets. These targets had been set in close consultation with Pakistani authorities. Litigation in tax cases, often triggered by ambiguous legal provisions, retrospective tax measures, or disputes over tax demands, continues to hinder the FBR’s ability to meet its ambitious revenue goals. Many of these targets are built on the assumption of recoveries from these very cases, which remain unresolved. The opening day of talks also marked the final mission for Julieth Pico Mejia, the IMF’s outgoing tax expert for Pakistan, who will soon be replaced by an Eastern European official. Against an original annual target of Rs. 12.9 trillion, the FBR managed to collect Rs. 11.74 trillion in the last fiscal year, falling short of both the absolute collection goal and the agreed increase in the tax-to-GDP ratio to 10.5%. Minister of State for Finance Bilal Kayani acknowledged the shortfall but noted that the tax-to-GDP ratio still rose by 1.4% over the previous year. The IMF’s face-to-face meeting with Finance Minister Muhammad Aurangzeb was postponed to Monday, as the minister is currently in Washington. The Fund’s mission will remain in Islamabad until October 8, also reviewing the implementation of Pakistan’s $1.4 billion climate facility. FBR officials attributed the missed tax target to lower-than-expected inflation and sluggish economic growth, particularly in large-scale manufacturing. The inflation rate dropped to 4.5%, and the additional tax measures generated just over Rs. 800 billion, well below the Rs. 1.2 trillion is anticipated in the budget. The real estate sector’s continued slump further dampened revenue collection.