Pakistan’s tax collection has fallen well short of expectations, with the shortfall widening to Rs610 billion during the first nine months of the current fiscal year, raising concerns over the country’s ability to meet key conditions set by the International Monetary Fund.
Data released by the Federal Board of Revenue (FBR) showed that the government collected just over Rs9.3 trillion in taxes between July and March of FY26. This was significantly below the target set under the IMF programme, and even further behind the original goal of Rs10.1 trillion for the same period.
The gap has continued to grow despite the IMF declining to ease the annual target of Rs13.98 trillion, leaving the government with limited room to adjust.
Conflict adds pressure to revenues
Officials said the ongoing Middle East conflict played a notable role in weakening tax collection, particularly in March. Around Rs100 billion in revenues was reportedly lost during the month alone.
Disruptions in gas supply reduced payments from fertiliser plants by Rs35 billion, while import-related taxes took a hit of about Rs65 billion due to supply chain issues linked to the closure of the Strait of Hormuz.
As a result, March collections stood at Rs1.182 trillion, missing the monthly target by Rs185 billion. The increase compared to the same month last year was modest at 6 percent, reflecting the broader slowdown.
Growth too slow to meet annual target
Overall revenue growth during the July-March period remained at around 10 percent, far below the pace required to reach the full-year target. Analysts say this makes it highly unlikely that Pakistan will come close to the Rs13.98 trillion goal by the end of the fiscal year.
The shortfall also puts pressure on another key IMF condition, achieving a primary budget surplus of 1.6 percent of GDP, estimated at around Rs2 trillion.
Reliance on stop-gap measures
To manage the widening gap, the government has increased petroleum levy rates and sharply cut development spending. While these steps may help meet headline fiscal targets, experts warn they create only a temporary sense of stability rather than addressing underlying issues.
At the same time, the FBR issued Rs447 billion in tax refunds during the nine-month period, including Rs61 billion in March alone, further affecting net collections.
Tax performance across sectors
A closer look at the figures shows mixed performance across different tax heads. Income tax collection reached Rs4.64 trillion, marking a 12 percent increase from last year but still missing the target.
Sales tax brought in Rs3.1 trillion, up 9 percent year-on-year but significantly below expectations, partly due to earlier advance collections.
Federal excise duty stood at Rs608 billion, showing a 13 percent increase, while customs duty collection remained weak at Rs956 billion, rising only 3 percent amid disrupted global trade flows.
IMF review and reform commitments
The shortfall comes at a critical time, as the IMF has linked the release of a $1.2 billion tranche to Pakistan’s progress in revenue collection, including recovering Rs322 billion stuck in court cases. Officials said more than Rs290 billion has already been recovered.
Finance Minister Muhammad Aurangzeb has assured the IMF that the government will continue to push reforms in tax administration and take additional steps to limit the shortfall in the remaining months of the fiscal year.
However, given the current pace of collection and ongoing external pressures, meeting the annual target appears increasingly unlikely.
