IMF Warns Pakistan’s Federal Tax Revenues to Stagnate

The International Monetary Fund (IMF) has cautioned that Pakistan’s federal tax contribution is likely to remain largely unchanged over the next five years, despite an improvement in tax collection during FY25, with future revenue growth expected to rely mainly on higher provincial taxes.

According to IMF estimates, Federal Board of Revenue (FBR) collections rose from 8.9 percent of GDP in FY24 to 10.3 percent in FY25, supported by revenue measures worth Rs2.5 trillion. However, collections missed the programme target of 10.7 percent, highlighting ongoing fiscal challenges.

In rupee terms, FBR revenues increased to Rs11.74 trillion in FY25 but fell short of projections by over Rs1.2 trillion. The IMF attributed the gap mainly to weaker economic growth, faster disinflation, and administrative issues such as delays in resolving tax disputes.

The IMF expects future revenue gains to come largely from provinces, with the provincial tax-to-GDP ratio projected to rise from 0.9 percent in FY25 to 1.6 percent by FY28. Measures such as agricultural income tax reforms and expanded sales tax on services are expected to drive this growth.

Overall revenues increased to 15.9 percent of GDP in FY25, aided by higher petroleum levies and State Bank profit transfers. The IMF projects the fiscal deficit to gradually narrow from 5.4 percent of GDP in FY25 to 2.8 percent by FY30, provided reform momentum continues.