The Federal Board of Revenue (FBR) faced a substantial revenue shortfall of Rs 380 billion during the first half of the current fiscal year (July-December 2024). The total tax collection amounted to Rs 5,629 billion, falling short of the projected target of Rs 6,009 billion, raising concerns over Pakistan’s fiscal performance.
Performance Overview
The FBR achieved a gross collection of Rs 5,895 billion, which included Income Tax revenue of Rs 2,826.5 billion, Sales Tax revenue of Rs 2,105.4 billion, Federal Excise Duty of Rs 346.6 billion, and Customs Duty of Rs 617.2 billion. However, after issuing refunds of Rs 272 billion, the net collection stood at Rs 5,623 billion, leaving a significant gap from the agreed target.
Efforts to Narrow the Gap
In December 2024, the FBR managed to collect Rs 1,326 billion against a monthly target of Rs 1,373 billion, narrowing the shortfall to Rs 47 billion. A senior FBR official emphasized that efforts made during the month successfully reduced the projected deficit of Rs 80-90 billion.
Additionally, the FBR benefited from a one-time ordinance fixing a 44% tax rate on bank profits, generating Rs 72 billion in the current fiscal year. The last day of December 2024 proved particularly fruitful, with Rs 275 billion collected in a single day, demonstrating the FBR’s capacity to boost revenue collection.
Concerns over IMF Review
The shortfall raises questions about the upcoming review by the International Monetary Fund (IMF), expected to take place in February 2025. Under the agreement with the IMF, if the revenue deficit exceeds 2% of the assigned target, the government must introduce contingency measures.
While Islamabad may propose a reduction in the tax collection target, the IMF is likely to push for additional taxation measures to meet the ambitious Rs 12,970 billion target set for the fiscal year ending June 30, 2025.
Challenges Ahead
As Pakistan grapples with fiscal challenges, the FBR’s performance in the second half of FY25 will be critical. Meeting the IMF’s requirements without imposing additional tax burdens on the struggling economy remains a daunting task. The government must balance fiscal consolidation with measures to stimulate economic growth and expand the tax base.
The ongoing shortfall, if unresolved, could lead to tough decisions and further scrutiny by international lenders, underscoring the importance of proactive fiscal policies and effective revenue collection mechanisms.