Pakistan Tax Target Faces IMF Cut

The International Monetary Fund (IMF) is considering revising Pakistan’s tax revenue target downward to less than Rs12.5 trillion, citing a slowdown in economic growth and an eight-month shortfall in revenue collection, as per The Express Tribune.

Initially, the Federal Board of Revenue (FBR) aimed to collect over Rs12.9 trillion, but any revision will depend on the Finance Ministry’s ability to cut expenditures while ensuring a primary budget surplus of Rs1.2 trillion under the IMF agreement.

During discussions on fiscal performance, revenue streams, and external financing, both sides deliberated on adjusting the FBR’s target to a range of Rs12.3 trillion to Rs12.5 trillion. The FBR proposed a reduction of Rs579 billion, though the IMF is leaning toward a Rs435 billion cut.

The IMF has cautioned that merely lowering tax targets without corresponding spending cuts could derail fiscal stability. With limited areas left to trim expenses, the Finance Ministry is now weighing further cuts to the Public Sector Development Programme (PSDP), which was initially set at Rs1.4 trillion but had already been slashed to Rs1.1 trillion.

Despite earlier setbacks, tax officials remain hopeful of reaching collection goals for March. However, shortfalls are anticipated in April and May, with plans to make up for them in June.

To address the deficit, the FBR has proposed reducing tax rates on the tobacco, beverage, and construction industries to boost sales, estimating that this could generate Rs90 billion in additional revenue. Another Rs300 billion is expected to be recovered through pending legal cases.

Earlier, the government introduced Rs1.3 trillion in new taxes to meet its fiscal goals, disproportionately burdening salaried workers. Even so, tax revenue fell short by Rs606 billion between July and February, with officials attributing Rs450 billion of this gap to sluggish economic expansion. Officials remain confident that no further declines will occur before June.

To recover lost revenue, the government is turning to advance income tax under Section 147 of the Income Tax Ordinance, expecting to raise Rs130 billion. The FBR has already collected Rs929 billion in advance taxes within the first seven months of the fiscal year—a 27% increase compared to the previous year.

An additional Rs90 billion has been secured through enforcement actions, largely from windfall taxes on banks and an increase in the base tax rate to 44%.

Finance Minister Muhammad Aurangzeb reassured that the government would exhaust all available options before imposing new taxes.

Meanwhile, the Power Division has committed to keeping circular debt below the agreed Rs2.429 trillion threshold for the current fiscal year. The IMF has also requested projections for the 2025-26 circular debt, signaling its intent to push energy sector reforms.

The Pakistan Bureau of Statistics (PBS) briefed the IMF on the latest economic and social surveys, stressing the importance of updated data on poverty, unemployment, and agricultural conditions.

The ongoing Household Integrated Economic Survey (HIES) 2024-25 is collecting insights into literacy rates, school dropout numbers, health conditions, and household incomes. Similarly, the Labour Force Survey 2024-25 is underway, though the government has decided to release only an annual report instead of quarterly updates.

As negotiations continue until March 14, the final decision on tax adjustments, expenditure reductions, and budgetary strategies will be crucial in securing the next $1.1 billion installment under the $7 billion Extended Fund Facility (EFF).