By Staff Reporter
ISLAMABAD: Pakistan told International Monetary Fund officials that the war in the Gulf and disruption to shipping through the Strait of Hormuz cost the government about Rs144 billion in tax revenue in the July-September quarter, as Islamabad seeks to keep a $7 billion loan program on track.
The Federal Board of Revenue, the tax authority, told the visiting mission on Monday that higher fuel prices and slower economic activity had weighed on sales tax and on withholding tax collected on imports. The FBR nonetheless said it would meet the Rs3.053 trillion first-quarter target agreed with the Fund by Sept. 30.
The agency expects to collect about Rs1.330 trillion in September against a monthly target of Rs1.343 trillion, a small miss that would still bring the quarter to its goal. The FBR had collected roughly Rs1.722 trillion in July and August, ahead of its Rs1.71 trillion target for the two months, though revenue growth was only 3.3% and the agency needs 17.4% growth to reach the full-year goal of Rs15.263 trillion.
Sources said the FBR declined to commit to that annual target, telling the mission that the outcome would depend on how the regional security situation develops. Last year the agency missed its downward-revised target by Rs929 billion. The IMF was also told the FBR would meet its other performance indicators, including digital invoicing and monitoring of production lines.
Review under way
The mission, led by Iva Petrova, is conducting the fourth review of the $7 billion Extended Fund Facility and the third review of a $1.4 billion climate-linked Resilience and Sustainability Facility. A successful outcome would open the way to disbursements of about $1 billion and $200 million, respectively, by the end of November or early December. The Fund is also holding its Article IV consultation on the broader economy.
The team arrived in Islamabad after three days in Karachi, where it met State Bank of Pakistan officials and the Sindh government; it expressed satisfaction with the central bank’s briefing, which said foreign-exchange reserves remain above the $17 billion program target. The government is hopeful the talks will conclude successfully on Oct. 7, officials said. The Fund is also watching whether the FBR can meet the first half-yearly revenue benchmark in a Fund program.
Rs853 billion gap
The Fund asked the finance ministry about a statistical discrepancy of Rs853 billion in the fiscal 2025-26 accounts of Pakistan’s federal and four provincial governments, of which Rs448 billion sits in federal accounts, according to officials. The ministry said it would supply more detail.
Officials attributed the gap to provincial investments in treasury bills and to a mismatch between cash withdrawn before the end of June and spending that took place in July and later. Punjab, which reported a discrepancy of Rs266 billion, pointed to activity in commercial accounts and to differences between provincial and federal accounting. It also cited delayed releases of development funds, which left cheques issued before June 30 to clear only afterward.
Officials also said the incomplete rollout of the treasury single account, with many government bodies still holding funds outside it, contributes to the discrepancies. They said the gap would not affect the primary budget surplus of 2.9% of gross domestic product, the central condition of the program, which the government says it has met. The Fund is also concerned that Pakistan missed a target to spend Rs3.47 trillion on health and education by Rs370 billion.
Farm tax lags
Provincial collection of agricultural income tax remains weak even after rates were raised from 15% to 45%, in line with the business income tax rate. Sindh collected Rs1.1 billion against a Rs2 billion target last year, and officials expect it to miss this year’s Rs6 billion goal by at least Rs3 billion. Punjab collected about Rs4 billion against a Rs10.5 billion target and has set Rs12.5 billion for this year. Officials said Punjab and Sindh may again fall short.
The FBR has shared data on 44,350 people who declared agricultural income in tax year 2025 returns under an agreement with Sindh, which says it needs real-time connectivity with the federal agency. Sindh has moved farm-tax administration to its revenue board and has recorded 3,650 registrations and 1,912 returns through its digital system.
The Fund also asked about the poor uptake of a second fixed-tax scheme for traders. Officials said the scheme was meant as a last chance before penalties and a crackdown begin.
Asset declarations
Separately, the Establishment Division and the FBR briefed the mission on digitising asset declarations under Section 15-A of the Civil Servants Act, 1973. About 10,000 federal civil servants must declare movable and immovable assets through the online system by Oct. 30, and filing is mandatory, officials said. The declarations are due to be published in December 2026 or January 2027. Provincial civil servants are not covered at this stage.
Publication of senior federal civil servants’ declarations by December 2026 is among the conditions the Fund added to the program earlier.
The Fund has previously said the Middle East conflict weighs on Pakistan’s outlook. During earlier talks this year, Petrova said discussions covered its effect on the balance of payments and external financing needs amid volatile energy prices.
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