Karachi, November 4, 2024 – The Federal Board of Revenue (FBR) finds itself grappling with a widening gap in tax targets, exacerbated by a sharp decline in corporate profitability for the first quarter of the fiscal year 2024-25. This financial shortfall underscores the mounting difficulties the FBR faces in achieving its ambitious revenue goals amid a complex economic landscape.
In October 2024, the FBR managed to collect approximately Rs 877 billion, falling notably short of its Rs 980 billion target—a deficit of Rs 103 billion. Cumulatively, the FBR’s collections for the first four months of the fiscal year reached Rs 3,440 billion, falling Rs 196 billion below the set target of Rs 3,636 billion for July through October. This underperformance has intensified scrutiny on FBR’s revenue strategies and future tax collection outlook.
The decline in corporate profitability compounds these challenges, with companies listed on the KSE-100 index reporting a substantial 14% year-on-year drop in earnings for the first quarter of 2024-25. According to an analysis by Topline Securities Limited, these firms collectively earned Rs 403 billion in the first quarter, a sharp fall from the Rs 468 billion reported during the same period last year. The deteriorating corporate landscape, characterized by reduced profitability, will inevitably pressure the FBR’s revenue projections in the coming quarters, further widening the fiscal gap.
Compounding these issues, Pakistan’s economic growth has decelerated, with inflation and GDP projections both trending downward. This economic slowdown reduces the tax base, challenging the FBR’s ability to meet its revenue goals. In response, the FBR is reportedly contemplating various revenue-enhancing measures aimed at bridging the tax deficit. These may include stringent enforcement protocols, incentives for retailers to formalize, leveraging import revenue, and increasing large-scale manufacturing (LSM) contributions.
Despite the shortfall, the FBR saw a notable uptick in income tax collections, which reached Rs 1,230 billion, surpassing the target of Rs 1,098 billion for the first quarter. However, sources within the FBR clarified that the bureau has refrained from withholding refunds as a means to artificially inflate revenue. In fact, under direct orders from the FBR Chairman, all pending Sales Tax Refund Payment Orders for exporters, totaling Rs 32 billion and processed through the “Faster” system as of September 30, 2024, were released on November 1.
As the fiscal year unfolds, the FBR is under pressure to balance revenue collection targets with the need to support a sluggish economy. The board’s strategy will need to be both agile and robust, as it seeks to reconcile ambitious tax goals with a weakened corporate sector and a contracting economic landscape.
