Islamabad, March 6, 2025: The International Monetary Fund (IMF) may lower Pakistan’s tax collection target to below Rs12.5 trillion due to the ongoing economic slowdown and a significant revenue shortfall. However, the government will still need to meet targets for the remaining four months and partially recover lost revenue.
The final reduction from the original Rs12.9 trillion target will depend on the Finance Ministry’s ability to cut expenditures while maintaining the IMF’s requirement of a Rs1.2 trillion primary budget surplus for the fiscal year, government sources said.
During their third consecutive day of talks on Wednesday, Pakistani officials and the IMF discussed lowering the tax target to between Rs12.3 trillion and Rs12.5 trillion. The Federal Board of Revenue (FBR) proposed a Rs579 billion cut, while the IMF signaled a possible reduction of Rs435 billion, though no formal decision has been made.
FBR officials expressed confidence in meeting the March tax target but anticipated possible shortfalls in April and May, which they expect to recover in June.
To bridge the gap, the FBR has proposed lowering tax rates on tobacco, beverages, and the construction sector to generate an additional Rs90 billion. It also aims to recover Rs300 billion through court cases.
Despite imposing Rs1.3 trillion in additional taxes, the government has already suffered a Rs606 billion shortfall from July to February, disproportionately affecting salaried taxpayers. The FBR attributed Rs450 billion of this loss to lower-than-expected autonomous growth but expects no further decline through June.
The IMF has conditioned any tax target adjustment on expenditure cuts to maintain a 1% primary budget surplus. The Finance Ministry has limited fiscal space and may make further cuts to the Public Sector Development Programme (PSDP), potentially withholding fourth-quarter budget releases, except for foreign-funded projects.
Originally set at Rs1.4 trillion, the PSDP has already been reduced to Rs1.1 trillion, with low spending in the first half of the fiscal year leaving room for further cuts. Additionally, the government expects to save Rs50 billion from power sector subsidies.
To recover some revenue shortfalls, authorities are considering advance income tax collection under Section 147 of the Income Tax Ordinance, estimating Rs130 billion in recoveries. So far this fiscal year, the FBR has collected Rs929 billion in advance tax, a 27% increase from last year.
The FBR also reported Rs90 billion recovered through enforcement measures, primarily from banks via windfall income tax and an increase in the base income tax rate to 44%.
During discussions with the IMF, the Pakistan Bureau of Statistics (PBS) briefed officials on the progress of key economic and social surveys. These include the first-ever digital Household Integrated Economic Survey (HIES) 2024-25, which is currently underway and set for publication in December 2025.
HIES provides critical data on literacy rates, school enrollment, child and women’s health, household income, savings, liabilities, and poverty estimation. It also covers 31 indicators for 62 Sustainable Development Goals (SDGs).
The government has also launched the Labour Force Survey 2024-25, though quarterly reports will not be published. Instead, an annual report will be released within six months of fieldwork completion.
Finance Minister Muhammad Aurangzeb stated that instead of imposing additional taxes, the government will focus on recovering revenue through existing avenues to address the shortfall.
