Direct taxes emerge as key driver as Pakistan’s tax system shifts toward higher compliance and broader revenue mobilisation
ISLAMABAD: The Economic Survey of Pakistan 2025-26 has highlighted a significant transformation in country’s federal tax system, showing a sharp rise in revenues collected by the Federal Board of Revenue and a gradual shift towards greater reliance on direct taxation.
According to the survey, FBR tax revenues are projected at Rs14.13 trillion in fiscal year 2025-26 (later revised downward to Rs12.98 trillion), compared with Rs11.74 trillion in the previous year. This reflects continued growth in tax mobilisation and an improving contribution of taxes to the national economy.
The data indicates that tax revenues are now equivalent to 10.9 per cent of GDP, up from 10.3 per cent in FY2025.
Direct taxes become key revenue driver
The survey shows that direct taxes have increasingly become the backbone of federal revenue collection.
Direct tax receipts are projected to reach Rs6.90 trillion in FY2026, accounting for 48.8 per cent of total FBR collections. This marks a substantial rise compared with Rs1.34 trillion in FY2017, when direct taxes accounted for just 39.9 per cent of total revenue.
The trend reflects a gradual shift towards a more income-based and progressive taxation structure in Pakistan.
Indirect taxes still dominant but declining in share
Indirect taxes, including sales tax, customs duties and federal excise duty, are expected to generate Rs7.23 trillion in FY2026, representing 51.2 per cent of total FBR revenue.
While still the larger component, the share of indirect taxes has declined over time from more than 60 per cent in FY2017, indicating a policy shift towards direct taxation.
Among indirect taxes, sales tax remains the largest contributor, projected at Rs4.75 trillion. Customs duties are estimated at Rs1.59 trillion, while federal excise duty is expected to generate Rs888 billion.
Long-term growth in tax collection
The survey shows a consistent upward trend in tax collection over the past decade.
FBR revenues have increased from Rs3.37 trillion in FY2017 to an estimated Rs14.13 trillion in FY2026, representing more than a fourfold increase in nine years.
This growth has been supported by improved enforcement, documentation measures and structural tax reforms aimed at expanding the tax base.
Tax-to-GDP ratio improves
A key highlight of the report is the improvement in Pakistan’s tax-to-GDP ratio.
After declining to 8.4 per cent in FY2020, the ratio has steadily recovered and is expected to reach 10.9 per cent in FY2026, reflecting strengthened tax administration and better compliance measures.
The report suggests that sustained reforms have contributed to a more stable revenue base despite ongoing economic challenges.
Policy focus on documentation and compliance
The Economic Survey notes that the government’s revenue strategy for FY2026 is focused on enhancing compliance, broadening the tax base and reducing reliance on indirect taxation.
It emphasises efforts to document the economy more effectively and strengthen enforcement mechanisms to support fiscal stability.
With ambitious revenue targets set for FY2026-27, the report underscores the importance of continued tax reforms and improved governance in ensuring long-term fiscal sustainability and economic development.
