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–Country’s tax authority missed its nine-month target by Rs610 billion as import slowdown and geopolitical tensions hit revenue growth
Aftab Maken
ISLAMABAD: The Federal Board of Revenue has reported a widening revenue shortfall of Rs 610 billion during the first nine months of FY2026, reflecting mounting fiscal pressures amid slowing imports and external shocks.
The Federal Board of Revenue collected Rs 9,307 billion between July and March against a target of Rs 9,917 billion, according to provisional data shared by senior officials. The gap has sharply increased from Rs 428 billion recorded in the first eight months of the fiscal year, indicating a deterioration in monthly collection trends.
Officials said the shortfall expanded by Rs182 billion in March alone, making it one of the weakest months for tax receipts in the current fiscal cycle. The decline was largely attributed to a contraction in import-related taxes, which form a critical component of Pakistan’s revenue base.
A senior official told local media that tax collection fell by Rs 64 billion in March due to a significant drop in imports. The slowdown followed rising geopolitical tensions linked to the ongoing conflict involving the United States, Israel, and Iran, which disrupted trade flows and dampened economic activity.
“We saw zero growth in import-related taxes in March 2026,” the official said, adding that collections had shown around 18% growth until February, reaching Rs 356 billion. However, this momentum stalled completely in March, with collections remaining flat compared to the previous month.
Import taxes, including customs duties and sales tax on imports, typically contribute nearly 40% to FBR’s total revenue, according to data from Pakistan’s Ministry of Finance. Any disruption in import volumes therefore has an immediate and significant impact on overall tax performance.
Pakistan’s imports have remained under pressure throughout FY2026 due to tight administrative controls, exchange rate volatility, and subdued domestic demand. The State Bank of Pakistan has maintained a cautious monetary stance, keeping interest rates elevated to curb inflation and stabilize the external account.
According to the State Bank’s latest monetary policy statement, Pakistan’s current account showed signs of improvement during the fiscal year, supported by restrained imports and stable remittance inflows. However, this adjustment has come at the cost of reduced tax collection from trade-related activities.
Historically, Pakistan’s tax system has relied heavily on indirect taxation, particularly at the import stage, due to challenges in broadening the domestic tax base. The tax-to-GDP ratio has remained below 10% for years, significantly lower than regional peers, as noted in recent reports by the International Monetary Fund.
The ongoing fiscal year is critical for Pakistan as it remains under an IMF-supported reform programme aimed at improving revenue mobilization and fiscal discipline. The government has committed to ambitious tax targets, including structural reforms in sales tax, income tax, and enforcement mechanisms.
However, the widening shortfall raises concerns about the government’s ability to meet its annual revenue target of over Rs12 trillion for FY2026. Analysts warn that continued underperformance may necessitate additional revenue measures or expenditure cuts in the final quarter.
Pakistan’s tax collection has shown mixed trends in recent years. In FY2025, the FBR recorded growth of around 30%, driven by inflationary gains and higher nominal economic activity. However, much of this increase was attributed to higher prices rather than real expansion in the tax base.
The current slowdown highlights structural weaknesses in the revenue system, particularly its dependence on external trade and limited documentation of the domestic economy. Efforts to digitize tax administration and expand the retail sector tax net have so far yielded modest results.
Recent policy measures, including stricter enforcement on non-filers and increased monitoring of high-value transactions, have been introduced to boost compliance. However, their impact remains gradual and insufficient to offset losses from declining imports.
Economists say geopolitical uncertainties and global trade disruptions could continue to weigh on Pakistan’s import volumes in the coming months. This may further complicate revenue collection efforts, especially if domestic economic recovery remains fragile.
The government may also face pressure to revise its fiscal projections during the upcoming budget cycle. Meeting IMF benchmarks will require stronger revenue performance and credible policy actions to address structural gaps in taxation.
Looking ahead, the performance of the Federal Board of Revenue will remain closely tied to macroeconomic stability, external sector dynamics, and policy reforms. Sustained improvement in tax collection will depend on broadening the tax base and reducing reliance on import-driven revenues, a long-standing challenge for Pakistan’s fiscal framework.
