The Federal Board of Revenue (FBR) collected Rs13.003 trillion in taxes during the fiscal year 2025-26, missing the International Monetary Fund (IMF) condition by a significant margin of Rs975 billion. This marks the second consecutive year that the tax authority has fallen short of its target by nearly Rs1 trillion or more.
Shortfall Details
In dollar terms, the FBR collected $46 billion against the assigned target of $50 billion, resulting in a $4 billion shortfall—more than half of the $7 billion bailout package obtained from the IMF. The original target set by the IMF and the government of Prime Minister Shehbaz Sharif in June last year was Rs14.13 trillion, which was later lowered to Rs13.979 trillion during the May review talks. However, the FBR's provisional collection still fell short by Rs975 billion.
Tax-to-GDP Ratio Decline
The FBR's tax-to-GDP ratio marginally fell to 10.2% during the just-ended fiscal year, reflecting the nation's sluggish tax growth. The collection was in line with the FBR's downward assessment of Rs13 trillion made in June after missing targets for the first 11 months. The banking system cleared Rs12.97 trillion, with the remaining Rs33 billion expected to be cleared by midnight, according to tax authorities.
Revenue Measures and Challenges
Despite taking additional revenue measures in June last year and benefiting from higher-than-targeted inflation, the FBR failed to achieve monthly targets. The stable exchange rate partially dented import revenues. Finance Minister Muhammad Aurangzeb and FBR Chairman Rashid Langrial have started quoting collection figures in dollar terms, despite taxes being collected in rupees.
IMF Target and Revised Estimates
During the second review talks, the IMF lowered the target by Rs151 billion but kept it unchanged during the last review talks despite FBR requests to cut it to under Rs13.5 trillion. The FBR unilaterally reduced its target to Rs12.893 trillion after failing to achieve previous monthly targets, but this did not change the IMF's position. The FBR spokesperson stated, "The Rs12.983 trillion figure is the revised estimate for FY2025-26 carried in the Annual Budget Statement, approved by parliament as part of the federal budget process, which includes consultation with the IMF on fiscal parameters."
Sub-Targets Performance
All major sub-targets were missed. Income tax collection reached Rs6.6 trillion, missing the goal by Rs323 billion but up 13.5% from last year, including super tax recovered after a court ruling. Sales tax collection amounted to Rs4.265 trillion, behind by Rs494 billion, with 9.3% growth. Federal excise duty collection reached Rs840 billion, up 9.7% but missing the target by Rs51 billion. Customs duty collection fell short by Rs108 billion, totaling Rs1.33 trillion with less than 1% growth despite an increase in the import bill.
New Fiscal Year Target
For the new fiscal year, the government has set a Rs15.264 trillion target for the FBR, requiring a 17.4% growth rate. The government introduced over Rs1 trillion in policy and enforcement measures in the budget. Achieving this target is critical for meeting three national goals: security of territorial borders, water security, and food and fuel security. The provinces will receive their 57.5% share in the divisible pool based on Rs13.35 trillion collection, with the remaining Rs1.035 trillion of their shares surrendered to the federal government to finance higher defence spending, mega dams, and fuel price stabilisation. This Rs1.035 trillion grant is contingent upon achieving the Rs15.264 trillion target, and any shortfall would reduce the grant component proportionately.
