By Staff Reporter
ISLAMABAD: The Federal Board of Revenue is careening toward a revenue shortfall of close to Rs1 trillion by fiscal year-end, with the tax authority needing to collect an extraordinary Rs2.75 trillion in June alone to meet its downward-revised annual target — a sum that officials privately concede is out of reach.
The FBR collected Rs966 billion in May, falling Rs184 billion short of the month’s target of Rs1.15 trillion, as a confluence of forces battered the revenue base: trade disruptions stemming from the Middle East conflict, a sharp decline in import-stage sales tax, and a prolonged Eid ul-Azha holiday that shuttered economic activity for the better part of a week. The May shortfall pushed the cumulative gap to Rs868 billion for the first eleven months of fiscal year 2025-26, with collections reaching Rs11.227 trillion against a revised target of Rs12.095 trillion.
“There are two major reasons — sluggish economic activity due to the Gulf war, and prolonged Eid holidays — that caused the shortfall to balloon to Rs184 billion in May,” a senior FBR official said in background discussions.
The deterioration has been rapid. Through the first ten months of the fiscal year, the gap stood at Rs684 billion. It widened by Rs184 billion in a single month — the sharpest monthly deterioration this fiscal year — as the regional conflict disrupted trade flows, compressed import volumes and weighed on consumption of excisable goods.
A Shrinking Target, A Growing Gap
Parliament approved an FBR collection target of Rs14.13 trillion at the time of this year’s budget announcement. The International Monetary Fund subsequently revised that figure down to Rs13.979 trillion. The FBR’s own internal projections have since slid further, to around Rs13 trillion — implying a shortfall of roughly Rs1 trillion even against that softer benchmark.
To reach the IMF’s figure of Rs13.979 trillion, the FBR would need to collect Rs2.752 trillion in June — a single-month record that would require roughly triple the pace of May’s collections. Officials are not betting on it. The more realistic scenario, they say, is a year-end figure close to Rs13 trillion, which itself would represent an achievement given the headwinds. Officials noted that the Eid holiday-related shortfall of roughly Rs60 billion may partially recover in June, providing a modest cushion.
The challenge compounds into the next fiscal year: the IMF has set an FBR revenue target of Rs15.267 trillion for FY27 — implying additional collections of roughly Rs2.2 trillion over this year’s likely outturn, a target that will demand structural expansion of the tax base rather than the administrative measures and one-off fixes that have sustained collections in recent years.
Import Stage the Weak Link
A breakdown of revenue streams points to a widening fault line at the import stage. Sales tax and federal excise duty collected on imports recorded near-stagnant growth in May, while withholding tax and customs duty rose only marginally. Officials attributed the weakness directly to the Gulf conflict, which has disrupted regional trade lanes and dampened import volumes, particularly of consumption and excisable goods.
Domestic sales tax, by contrast, posted relatively firmer growth, suggesting that the compression is concentrated at the border rather than in the broader domestic economy. The pattern — import-side weakness, domestic-side resilience — echoes the selective import compression that policymakers have at times pursued deliberately to shore up the current account, but now appears to be driven by external disruption rather than policy design.
For the eleven-month period, income tax emerged as the sole major head to beat its target, surpassing the revised benchmark by Rs27 billion to reach Rs5.539 trillion — a 14% increase over Rs4.879 trillion in the corresponding period last year. Federal excise duty also outperformed, reaching Rs745 billion against a target of Rs741 billion, up 11% year-on-year.
Sales tax collections totalled Rs3.771 trillion, falling Rs28 billion short of the revised target, though still 8% above the prior year’s Rs3.497 trillion. Customs duty came in at Rs1.178 trillion, Rs27 billion below its target, with only 2% growth over last year’s Rs1.154 trillion.
Petroleum Levy Fills the Breach
The shortfall in tax collections has been partially offset by a surge in petroleum levy receipts, a non-tax revenue instrument that flows outside the FBR’s books but figures centrally in the government’s fiscal arithmetic. The levy generated Rs1.205 trillion in the first nine months of FY26, against an annual target of Rs1.468 trillion — a pace that keeps the full-year goal within reach and has provided the IMF with one of the few fiscal bright spots in an otherwise difficult year.
The IMF has signalled comfort with the petroleum levy trajectory even as tax collection disappoints — a dynamic that officials say has given the government some flexibility in managing its commitments to the Fund, though it does little to address the structural tax effort that Pakistan’s revenue-to-GDP ratio urgently requires.
Refund outflows accelerated in the period, with the FBR issuing Rs551 billion in refunds and rebates to taxpayers in the eleven months through May, up 20% from Rs460 billion a year earlier — a release of liquidity to businesses but also a direct drag on net collections.
A Year of Downward Revisions
The pattern is not new. In FY25, the FBR missed its collection target by Rs163 billion even after two consecutive downward revisions, ultimately raising Rs11.737 trillion against a revised target of Rs11.9 trillion. Year-on-year growth was strong at 26% — driven partly by inflation and a partial economic recovery — but the persistent gap between targets and outcomes has become a defining feature of Pakistan’s fiscal management, one that the IMF programme has sought to address through more conservative baseline projections.
For FY26, the 10% year-on-year growth in eleven-month collections — Rs11.227 trillion against Rs10.202 trillion in the same period last year — reflects a real expansion in the revenue base, but one running well behind both the government’s ambitions and the structural consolidation demanded by Pakistan’s external financing programme.
With one month left in the fiscal year, the arithmetic is unforgiving. The question is no longer whether the FBR will miss its target — it will — but by how much, and whether June’s collections can contain the damage enough to preserve the broader IMF programme commitments that underpin Pakistan’s fragile macroeconomic stabilisation.
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