Tax targets missed again

Business Recorder

20 hours ago

EDITORIAL: As had long been anticipated, the Federal Board of Revenue (FBR) missed its tax collection goal for FY2024-25, collecting Rs11.7 trillion in revenue against an original target of Rs12.9 trillion. The FBR's faltering performance during the year prompted two downward revisions of this target — first to Rs12.3 trillion, then to Rs11.9 trillion.
In the end, the FBR missed the initial projection by over Rs1 trillion, and even the final, softened figure by Rs163 billion. These serial downward revisions and repeated misses signal more than just miscalculations by the tax bureaucracy and economic managers, although those are also troubling in their own right.
More fundamentally, they expose a systemic failure to reform the chronic failings that lie at the heart of the country's tax architecture.
The revenue targets were missed despite the imposition of exorbitant tax rates on salaried individuals and the corporate sector, the taxing of almost all essential consumable items, and the FBR upgrading its digital infrastructure, launching anti-smuggling operations and introducing additional tax measures worth a massive Rs1.3 trillion during the course of the year. In the end, its lacklustre performance also meant missing the IMF-set tax-to-GDP target of 10.6 percent.
Even so, it's important to acknowledge that despite missing its collection goal, the FBR still generated revenue 26 percent higher than the previous year's, suggesting that part of the problem lay in setting an overly ambitious target. Annual tax objectives rely on making certain basic assumptions about key economic indicators, including the GDP growth rate, interest rates, inflation and anticipated policy outcomes, including those tied to the IMF programme.
When these assumptions are misjudged, the resulting revenue expectations inevitably become skewed. In this case, too, FBR officials have cited overly optimistic projections of import volumes, inflationary pressures and high economic growth — all of which failed to materialise — as key reasons behind the shortfall.
However, beyond the miscalculation of targets and economic indicators lie foundational shortcomings in the country's fiscal framework, most crucially, a chronically narrow tax base. The system continues to disproportionately burden the salaried class and the corporate sector — which together contributed a significant Rs5.8 trillion to the national coffers in FY2024-25 — as well as low- to middle-income groups.
Meanwhile, large and often more profitable sectors — retail, agriculture and real estate, among others — remain either under-taxed or entirely outside the net. Genuine political will and the policy acumen required to address this imbalance meaningfully remain woefully lacking.
The over-reliance on ever-rising tax rates and aggressive taxation measures by the FBR have meant that over time Pakistan has begun to mirror high-tax Scandinavian economies in terms of rates, but without offering the public comparable public services, social protections or institutional accountability that typically justifies such taxation burdens.
The reforms needed to address the narrow tax base — such as bringing the vast retail and wholesale sectors into the net — remain largely unimplemented. Meaningful agricultural taxation, now being introduced not out of political will but under pressure from the IMF, is another case in point. There is only so much that can be extracted from the same segments of the population; beyond a certain threshold, higher tax rates simply incentivise evasion rather than improving compliance.
When last year's collection target was set, the then FBR chairman, Amjad Zubair Tiwana, had cautioned that revenue was unlikely to exceed Rs11.8 trillion, the one forecast that proved accurate. This suggests that there is awareness at the top of the system's limitations, yet consequential reforms remain absent. Instead, the focus remains on introducing additional, often aggressive tax measures and expanding the FBR's coercive powers to squeeze more from the same outstretched sources.
Until the political will, administrative capacity, effective policymaking and institutional accountability to broaden the tax base materialise, these cycles of overreach and underperformance will persist.
Copyright Business Recorder, 2025