The International Monetary Fund (IMF) has cautioned that Pakistan’s federal tax contribution is expected to remain largely flat over the next five years, despite a notable rise in the tax-to-GDP ratio in FY25, with future gains projected to rely mainly on higher provincial revenues.
According to IMF estimates, Federal Board of Revenue (FBR) receipts increased from 8.9% of GDP in FY24 to 10.3% in FY25, supported by additional revenue measures worth Rs2.5 trillion. Even so, collections fell short of the programme target of 10.7%.
For the current fiscal year, the Fund projects FBR revenue at 11.1% of GDP, a level expected to remain unchanged through FY30.
In rupee terms, FBR collections rose from Rs9.3 trillion in FY24 to Rs11.74 trillion in FY25. For the ongoing year, revenues are estimated at Rs13.98 trillion, implying a shortfall of Rs328 billion under current assumptions.
The IMF said tax revenue collection in FY25 missed budget projections by Rs1.224 trillion and fell short of the first review target by Rs524 billion. Around Rs850 billion of the gap was attributed to faster-than-anticipated disinflation and weaker GDP growth, while about Rs380 billion reflected administrative and enforcement challenges, including delays in resolving tax litigation.
Overall revenues, including non-tax receipts, increased to 15.9% of GDP in FY25 from 12.6% in FY24, largely on account of higher petroleum levy collections and increased transfers of State Bank profits.
The Fund expects the petroleum levy to remain a key revenue source, rising from Rs1.02 trillion in FY24 to more than Rs2.2 trillion by FY30, contributing roughly 1.1–1.2% of GDP over the medium term.
Direct taxes are projected to remain unchanged at around 5.5% of GDP through FY30, while the sales tax ratio is expected to stay within the 3.5–3.6% range.
Future revenue growth is expected to be driven mainly by provinces, supported by the rollout of agricultural income tax and expanded sales tax on services. The provincial tax-to-GDP ratio is projected to rise from 0.9% in FY25 to 1.3% in FY27, increase further to 1.6% in FY28 and then stabilise through FY30.
In absolute terms, provincial tax collections are forecast to rise from Rs929 billion in FY25 to Rs1.22 trillion this year, Rs1.77 trillion in FY27, Rs2.5 trillion in FY28, Rs2.8 trillion in FY29 and exceed Rs3.1 trillion by FY30.
The IMF noted that while provinces have begun implementing new agricultural income tax regimes, challenges persist, particularly in establishing effective information-sharing mechanisms between federal and provincial tax authorities.
Based on these projections, the Fund estimated the consolidated fiscal deficit at 5.4% of GDP in FY25, easing to 4% this year and declining further to 3.2% in FY27 and FY28, before narrowing to 2.8% by FY30.
