The International Monetary Fund (IMF) is considering lowering Pakistan’s tax collection target below Rs12.5 trillion due to sluggish economic activity and a significant revenue shortfall. Despite this possible revision, authorities will still need to meet the remaining four-month targets and recover part of the shortfall.
The extent of the reduction, from the original Rs12.9 trillion goal, depends on the Finance Ministry’s ability to curb expenditures while maintaining the IMF’s key requirement of a Rs1.2 trillion primary budget surplus for the fiscal year.
IMF Discussions and Revenue Strategies
During discussions between the IMF and Pakistani officials, the tax authorities proposed a Rs579 billion reduction in the target, while the IMF indicated it may agree to a cut of Rs435 billion, bringing the revised figure below Rs12.5 trillion. However, no formal decision has been finalized.
The Federal Board of Revenue (FBR) assured the IMF that March’s revenue target is achievable but highlighted possible shortfalls in April and May, which it aims to recover in June. To bridge the gap, the FBR proposed lowering tax rates on tobacco, beverages, and the construction sector, expecting an additional Rs90 billion from increased economic activity and sales. Another Rs300 billion is expected from court case recoveries.
Pakistan had earlier imposed Rs1.3 trillion in additional taxes, mostly burdening the existing taxpayers, yet fell short by Rs606 billion in revenue collection between July and February. The FBR attributed Rs450 billion of this shortfall to weaker-than-expected economic growth but does not anticipate further revenue losses on this account until June.
Expenditure Cuts and Development Budget Reductions
To meet the IMF’s primary budget surplus requirement of 1% of GDP (Rs1.2 trillion), Pakistan must either increase revenue collection or reduce expenditures. Given limited fiscal space, the Finance Ministry is considering further cuts to the Public Sector Development Programme (PSDP). Originally set at Rs1.4 trillion, the PSDP has already been reduced to Rs1.1 trillion, and further spending cuts are expected.
The Finance Ministry also anticipates Rs50 billion in savings from power sector subsidies. Additionally, it is exploring advance income tax recovery under Section 147 of the Income Tax Ordinance, which could bring in Rs130 billion.
The FBR reported Rs90 billion recovered through enforcement measures in the first eight months, largely from bank windfall income tax and an increased base tax rate of 44%.
Labour Force & Economic Surveys
Pakistan’s Bureau of Statistics (PBS) briefed the IMF on the progress of various social and economic surveys, essential for assessing the country’s poverty levels, unemployment, and economic health.
The Household Integrated Economic Survey (HIES) 2024-25, currently underway, aims to gather crucial data on literacy rates, child health, women’s health, income, and household consumption patterns. The results are expected by December 2025.
Additionally, Pakistan has launched the Labour Force Survey 2024-25 but will publish only an annual report, rather than quarterly updates, within six months of completing the fieldwork.
Finance Minister Muhammad Aurangzeb reaffirmed that the government aims to recover revenue shortfalls through alternative measures, avoiding any additional taxation.
