The Federal Board of Revenue (FBR) has encountered a significant tax revenue shortfall in March 2025, missing its collection target by Rs. 107 billion. This deficit arises from slower-than-expected GDP growth and lower inflation, impacting the government’s ability to meet its fiscal targets.
In March 2025, the FBR managed to collect Rs. 1,113 billion in revenue. However, this fell short of the set target of Rs. 1,220 billion, marking a substantial revenue gap.
This shortfall follows an ongoing trend of weaker-than-expected tax receipts throughout the fiscal year, underscoring the challenges faced by Pakistan’s revenue collection system.
FBR’s Fiscal Year (July-March 2025) Performance and Revenue Gap
For the first nine months of the fiscal year 2024-25 (July-March), the FBR collected Rs. 8,451 billion, which is Rs. 707 billion below the targeted Rs. 9,167 billion.
This significant revenue gap raises concerns over whether the FBR will meet its annual tax collection goal, given the slowing economy and fiscal constraints.
In response to the economic slowdown, the International Monetary Fund (IMF) has revised the FBR’s annual tax revenue target, lowering it from Rs. 12,913 billion to Rs. 12,334 billion.
This revision reflects the economic challenges facing Pakistan, including lower-than-expected inflation, which has resulted in reduced tax collections, particularly in sales tax and customs duties.
The State Bank of Pakistan (SBP) estimates that GDP growth for FY25 will range between 2.5% and 3.5%, significantly lower than initial projections.
Economic Factors Behind the Revenue Shortfall
Pakistan has experienced lower-than-expected inflation, which, while beneficial for consumers, has negatively impacted sales tax revenue.
Since sales tax is based on the price of goods and services, a lower inflation rate means reduced tax collections from key sectors like retail, manufacturing, and services.
Customs duties are a major source of revenue for the FBR, but a slowdown in import growth has resulted in a decline in import duty collections.
The government’s measures to curb imports to stabilize the current account deficit have also contributed to this revenue decline.
The SBP’s high policy rate of 12% has led to reduced business borrowing and investment, slowing overall economic growth.
This has directly impacted corporate tax collections, as businesses are reporting lower profits due to higher financing costs.
Challenges in Meeting the Revised Tax Collection Target
Despite the downward revision in tax targets, the FBR still faces an uphill battle in meeting the Rs. 12,334 billion target for FY25.
- Strengthening tax enforcement, particularly targeting tax evaders and underreporting businesses.
- Expanding the tax base, bringing more individuals and businesses into the formal economy.
The government and the FBR need to take immediate action to address the revenue shortfall and stabilize the economy.
The FBR must enhance its enforcement mechanisms to curb tax evasion and ensure compliance, particularly among high-income earners and underreported business sectors.
Instead of relying solely on new taxes, the government must focus on policies that boost business activity, such as lowering interest rates, providing incentives for manufacturing, and easing import restrictions.
 missed its March 2025 tax revenue target by Rs. 107 billion due to slower GDP growth and lower inflation.){kind=link}