ISLAMABAD, April 21, 2026 — The Federal Board of Revenue (FBR) has reported a sharp decline in revenue from profit-on-debt, reflecting the impact of sustained monetary easing over the past two years.
The FBR’s provisional data showed a 22% fall in tax collection from profit on debt during the first nine months (July–March) of fiscal year 2025–26. Collections dropped to Rs285 billion, compared with Rs365 billion in the same period a year earlier.
Officials attributed the decline primarily to aggressive interest rate cuts by the State Bank of Pakistan, which reduced its benchmark policy rate to 10.50% from a peak of 22% over the last two years. The lower rates have significantly compressed returns on fixed-income investments, directly affecting taxable income streams.
Tax on profit on debt is collected as withholding income tax under Section 151 of the Income Tax Ordinance, 2001. The levy applies to earnings from bank deposits, government securities, and national savings instruments—key channels for household and institutional savings in Pakistan.
FBR officials said the reduced interest rate environment has discouraged high-yield returns, shrinking the tax base linked to such earnings. “As returns decline, the corresponding tax collection also falls,” an official familiar with the matter said.
Economists note that while lower rates support economic activity by reducing borrowing costs, they also dampen government revenue from interest-linked taxes. The trend underscores the trade-off between growth-oriented monetary policy and fiscal performance.
The development may add pressure on revenue targets for the current fiscal year, as authorities seek to balance economic recovery with fiscal consolidation goals.