Revenue shortfall may hit Rs560bn in first half of FY2025-26, FBR tells PM

The Federal Board of Revenue has cautioned Prime Minister Shehbaz Sharif that tax collections in the first half of the fiscal year could fall short by up to Rs560 billion, even after the target was revised downward. 

According to a report by The Express Tribune, the warning was shared during a high-level fiscal review, as the Ministry of Finance flagged risks to government spending in the event of a widening revenue gap.

While no official details were shared about that interaction, officials said the discussion took place against the backdrop of IMF expectations following the recent approval of a $1.2 billion loan package.

The FBR informed the prime minister that it expects recoveries of around Rs200 billion from pending court cases this month, which could reduce the shortfall to about Rs362 billion against the revised target. However, without favourable and timely rulings, the revenue gap could widen to Rs562 billion.

The original tax target for July–December was set at Rs6.7 trillion and later revised down to Rs6.49 trillion. The FBR has already recorded a shortfall of Rs413 billion in the first five months of the fiscal year. Against the original target, the cumulative shortfall could exceed Rs775 billion.

According to officials, the FBR sought the Attorney General’s assistance to expedite decisions in tax-related court cases. The management also reiterated to the IMF that a ruling on the super tax case could come at any time in its favour, although the Federal Constitutional Court has scheduled the case for hearing next month, making a decision this month unlikely.

The finance ministry cautioned the prime minister that a significant revenue shortfall could force curbs on expenditure, as the IMF would not allow deviation from the agreed primary surplus target. 

Sources said concerns were raised over the FBR’s reliance on other institutions, including the central bank, the Power Division, the Petroleum Division and the Attorney General’s office, to meet its targets. The FBR chairman briefed the meeting on steps taken to improve performance, including the provision of vehicles to officers and approval of higher pay scales, aimed at achieving the annual target of Rs14.13 trillion.

The meeting also reviewed the impact of lower fuel and electricity prices on tax collection. The prime minister directed the FBR to clear pending refunds owed to oil marketing companies, but the FBR sought funds from the finance ministry, a request that was declined.

In an official statement, the Prime Minister’s Office said PM Sharif directed the FBR to intensify efforts to achieve an 11% tax-to-GDP ratio. He appreciated the Customs Department for reducing clearance times through the use of technology and artificial intelligence and instructed further improvements for imports and exports.

The prime minister also called for stricter tax enforcement across all sectors and commended the FBR and law enforcement agencies for action against illegal cigarette factories. Provincial governments were directed to fully cooperate with the FBR in actions against tax evasion and illegal manufacturing, and to ensure timely payment of sales tax refunds.