FBR misses half-year revenue target by Rs336 billion, tax hikes expected to offset shortfall

The Federal Board of Revenue (FBR) has missed its revenue collection target for the first half (July-December) of the fiscal year 2025-26 by Rs336 billion, accumulating Rs6,154 billion instead of the targeted Rs6,490 billion. The shortfall has raised concerns about achieving the annual tax target, sparking discussions on activating contingency measures in line with commitments made to the International Monetary Fund (IMF).

According to the provisional data, the FBR collected Rs1,421 billion in December, which fell short of the Rs1,446 billion monthly target by Rs25 billion, marking a Rs20 billion monthly shortfall. The December collection was achieved after a concerted effort by banks, which remained open until 10 PM on the last day of the month to facilitate the maximum collection. 

Additionally, the FBR processed 47% fewer refunds compared to December 2024, helping to curb the shortfall.

The FBR’s revenue performance across various sectors was mixed. Income tax collections amounted to Rs3.03 trillion, showing a 9% increase compared to last year, but falling short of the original target of Rs3.3 trillion. 

Sales tax collections reached Rs2.09 trillion, also falling short of the target, though reflecting a 10% increase year-on-year. Federal excise duties brought in Rs400 billion, marking an 11% increase from the previous year. However, customs duty collections, which amounted to Rs642 billion, fell below the target, though still reflecting an 8% increase compared to last year.

The monthly shortfall in December, while lower than in previous months, continues to be a concern, especially as the FBR paid Rs38 billion in refunds, compared to Rs72 billion in December 2024. 

In line with commitments to the IMF, the government is preparing to activate a series of contingency measures to address the shortfall. These include increasing federal excise duties (FED) on certain goods, such as fertilisers and high-value sugary items, and expanding the sales tax base by moving select items to the standard rate

. Additionally, the government is considering increases in withholding taxes, such as raising the tax on cash withdrawals from bank accounts to 1.5% (up from the current 0.8%) for individuals not on the active taxpayer list, and increasing taxes on mobile phone services and landline connections.

The government has also outlined plans to impose a 16% FED on confectionery and biscuits, which is expected to generate Rs70 billion annually. The increase in withholding tax on cellular calls, from 15% to 17.5%, is expected to raise an additional Rs24 billion. 

Meanwhile, the withholding tax on landline connections may be raised from 10% to 12.5%, expected to generate Rs20 billion annually.