Pakistan delivered one of its strongest tax efforts in years, yet the International Monetary Fund now expects federal tax growth to level off for the rest of the decade, placing fresh pressure on provinces to do more of the heavy lifting.
According to the IMF’s latest estimates, the country raised its tax-to-GDP ratio by 1.4 percentage points last year, largely through additional measures worth Rs2.5 trillion. Federal Board of Revenue collections climbed from 8.9 percent of GDP in FY24 to 10.3 percent in FY25, marking a rare jump. Still, the figure fell short of the programme target of 10.7 percent.
For the current fiscal year, the Fund projects FBR revenue at 11.1 percent of GDP. That level is expected to hold steady through FY30, signalling limited room for further gains without deep reforms.
In rupee terms, collections rose sharply from Rs9.3 trillion in FY24 to Rs11.74 trillion in FY25. Even so, the increase came with a large gap. Revenue missed budget projections by Rs1.224 trillion and fell Rs524 billion short of the IMF’s own target. Faster than expected cooling of inflation and slower economic growth accounted for a big share of the shortfall. Administrative weaknesses also played a role, particularly delays in settling tax cases in courts that kept large sums locked up.
Looking ahead, FBR revenue for the current year is estimated at Rs13.98 trillion, still leaving a projected gap of Rs328 billion under existing assumptions.
Overall government revenue told a slightly better story. Including non tax income, receipts rose to 15.9 percent of GDP in FY25 from 12.6 percent a year earlier. The IMF linked much of that increase to higher petroleum levy collections and profits transferred by the State Bank. The petroleum levy alone is expected to more than double from Rs1.02 trillion in FY24 to above Rs2.2 trillion by FY30.
With federal taxes expected to stall, the Fund sees provinces as the next growth engine. Provincial taxes, helped by agriculture income tax reforms and broader sales taxes on services, are projected to rise from 0.9 percent of GDP to 1.6 percent by FY28. In cash terms, provincial collections are expected to cross Rs3.1 trillion by FY30.
The IMF warned that Pakistan’s long standing tax ratio near 10 percent has limited growth. Countries that push it to 15 percent, it noted, tend to grow faster and more sustainably. For now, the Fund expects the fiscal deficit to narrow gradually, easing to 4 percent of GDP this year and falling below 3 percent by the end of the decade.
