IMF Flags Rs1 Trillion Gap in Pakistan’s Tax Target for FY26Government faces pressure to either introduce new taxes or prove enforcement measures will deliver
ISLAMABAD: The International Monetary Fund (IMF) has pointed out a revenue shortfall of over Rs1 trillion in Pakistan’s proposed tax collection target of Rs14.3 trillion for the 2025-26 fiscal year, putting pressure on the government to either introduce substantial new taxes or present convincing enforcement strategies.
While both sides have agreed on a Rs14.307 trillion target—16% or Rs2 trillion higher than the current year’s downward-revised goal—the IMF has expressed skepticism over the government’s projections for organic revenue growth. Pakistani authorities had estimated that improved economic growth and inflation could naturally boost tax revenues by about Rs1.5 trillion, but IMF officials believe the country can only realistically collect Rs13.3 trillion without new policy measures.
This results in a gap of approximately Rs1 trillion, which the government must bridge either through additional taxes or through credible enforcement mechanisms targeting the existing tax base.
Sources revealed that during recent discussions, Pakistani officials reviewed new tax measures worth around Rs560 billion to help meet the fiscal target. However, this figure falls short of the IMF’s expectations. In the previous budget, the government had imposed Rs1.3 trillion in new taxes but still failed to meet its original revenue target of Rs12.7 trillion.
The Rs14.3 trillion tax target is built upon achieving a primary budget surplus of 1.6% of GDP—just over Rs2 trillion. While Pakistani officials claim Rs600 billion can be raised through enforcement, the IMF remains doubtful, citing previous failures where optimistic estimates didn’t translate into actual collections.
The Federal Board of Revenue (FBR) has long faced criticism for its unreliable projections, often collecting only a fraction of what is anticipated from new tax measures. In response, the government has brought in World Bank experts to evaluate the revenue impact of proposed measures for the upcoming fiscal year. These experts are currently working within the FBR.
Senior FBR officials expressed hope that the chairman’s transformation plan would begin yielding results in FY26. The plan includes digital transformation across the value chain, implementation of tracking technology, and strengthening anti-smuggling operations. As part of these efforts, 37 new anti-smuggling check posts are being established, mainly along the Indus River, in Hub, and across strategic points in Balochistan. These posts will be supported by mobile enforcement units and integrated customs tracking systems to crack down on illegal goods transport.
Despite previous assurances to the IMF, FBR failed to meet its court recovery target of Rs150 billion in March and April. Of the Rs400 billion in total recoveries projected for FY25, only Rs34 billion has been collected so far. The IMF believes even the Rs600 billion enforcement goal for FY26 is overly optimistic, estimating actual collections may not exceed Rs400 billion.
Some within the FBR argue against introducing new taxes, warning that this would further suppress economic growth. They claim last year’s revenue target was unrealistic, requiring a 40% increase, and that more taxation now could cripple struggling industries.
High taxation on sectors like dairy and beverages has reportedly led to a 20–40% drop in sales, fueling the case for a more growth-friendly approach. Despite earlier efforts to tax small retailers through the “Tajir Dost” scheme, the government has failed to implement it effectively and may now shift focus to taxing wholesalers and distributors instead.
As negotiations with the IMF continue, Pakistan must now either commit to politically difficult tax reforms or provide firm assurances that its enforcement and recovery measures will deliver the revenue needed to meet fiscal targets.
