Tax Expenditure Report 2026 estimates Pakistan’s tax expenditure at 2.07% of GDP, well below the global average of 4.9%.

ISLAMABAD: Pakistan’s tax expenditure remains significantly below the global average, according to the Federal Board of Revenue (FBR), which says the country’s latest estimates reflect both the structure of its tax system and improvements in the methodology used to measure tax concessions.

In its Tax Expenditure Report 2026, the FBR estimated Pakistan’s total tax expenditure for FY2024–25 at 2.07 per cent of Gross Domestic Product (GDP), compared with a global average of 4.9 per cent of GDP across 33 countries.

The tax authority said the comparatively lower ratio is attributable to the design of Pakistan’s tax system as well as a revised benchmark methodology that has been brought more closely in line with international best practices.

Lower than many comparable economies

The report also compared Pakistan’s tax expenditure with that of 10 comparable economies over the period from 2011 to 2025.

According to the FBR, Türkiye recorded the lowest average tax expenditure among the selected countries at 0.46 per cent of GDP, while Romania registered the highest average at 4.18 per cent of GDP during the 15-year period.

The average tax expenditure across the peer group stood at 2.31 per cent of GDP.

With tax expenditure estimated at 2.07 per cent of GDP in FY2024–25, Pakistan ranks at the lower end of the comparison group, suggesting that the country’s level of tax exemptions and concessions is broadly consistent with those of comparable developing economies.

Improved estimation methodology

The FBR said the latest estimates incorporate refinements to the benchmark methodology used to calculate tax expenditures.

According to the report, the revised framework distinguishes genuine tax incentives from structural features of the tax system that are not regarded as tax expenditures, bringing Pakistan’s reporting practices closer to internationally recognised standards.

The tax authority said the updated methodology provides a more accurate assessment of the fiscal cost of tax exemptions and concessions while enhancing transparency and accountability in the country’s tax policy framework.

The report added that improved measurement of tax expenditures will support policymakers in evaluating the effectiveness of existing tax incentives and making informed decisions on future fiscal reforms.