IMF Sets Rs. 14.3 Trillion Tax Target As FBR Eyes Ending Non-Filer Category in FY26

The International Monterey Fund (IMF) has projected Rs. 14,307 billion (10.7 percent of GDP) as a tax collection target for the Federal Board of Revenue (FBR) for 2025-26 with the forecast that a new Bill in the National Assembly to end “non-filer” category would restrict non-filers from engaging in key economic transactions including vehicle and real estate purchases. The FBR’s new target has been mentioned in the IMF’s report released on Saturday under First Review for the Extended Arrangement under the Extended Fund Facility. IMF report revealed that direct tax collection has been projected at Rs. 6,470 billion for 2025-26; Federal Excise Duty has been estimated at Rs. 1,153 billion; sales tax Rs. 4,943 billion target of Rs. 4,943 billion and customs duty collection has been projected at Rs. 1,741 billion for 2025-26. The government of Pakistan has also agreed with the IMF that a carbon levy will be imposed through Finance Act 202 to be phased in over two years for gasoline and diesel products, and to be applied to fuel oil as well, disincentivizing fossil fuel use (especially the use of ICE vehicles and heavy-polluting fuel oil in electricity generation). Finally, the IT on net tax revenues from the Tajir Dost is proposed to be replaced by a new IT on income tax revenues collected by the FBR from retailers. According to the IMF report, the government has agreed to strengthen tax revenue collection to ensure general government revenue reaches 12.3 percent of GDP in 24-25, including FBR collections of 10.6 percent of GDP (Rs 12,332 billion). To support this effort, revenue administration measures to reduce the compliance gap will continue, focusing on compliance risk management (CRM), digital value chain monitoring, and detection of irregularities in sales tax returns, as well as closer monitoring of irregular import patterns and strengthened faceless customs assessments. The authorities are also actively pursuing the resolution of outstanding litigation cases (Rs. 367 billion of a total of Rs. 70 billion under dispute in these cases), including those before the Supreme Court (Rs. 43 billion), High Courts in Islamabad, Sindh, and Lahore (Rs. 217 billion), and the Appellate Tribunal Inland Revenue (Rs. 104 billion). The Supreme Court has completed its initial hearing, with a final decision expected by mid-April. A favorable ruling could effectively resolve related cases worth an estimated Rs. 120 billion. The IMF report further highlighted measures for strengthening tax administration. Compliance risk management (CRM) systems are now operational in the Large Taxpayer Offices (LTOs) in Islamabad, Karachi, and Lahore and have also been extended to the Corporate Tax Units. The FBR has integrated internal data and will incorporate third-party information, with the final goal of developing an automated CRM system. While the Tajir Dost scheme (FBR initiative to bring traders and retailers into the tax net through simplified registration and fixed monthly tax liabilities) has underperformed, recent increases in withholding taxes on unregistered retailers have yielded positive results, including a 51 percent year-on-year increase in filers among retailers, wholesalers, and traders, and a 38 percent increase in filers with positive tax liabilities as of January 2025. A new indicative target (new IT) on income tax revenue from this group has been introduced to monitor progress on bringing retailers into the tax net. To further improve compliance, a bill has been submitted to Parliament proposing the elimination of the “non-filer” category, which if approved would restrict non-filers from engaging in key economic transactions such as vehicle and real estate purchases. In parallel, efforts to improve compliance and expand the tax base will be monitored under a modified QPC on the number of new taxpayers with a positive tax liability.