Tax target may be met by curbing illegal trade

The government can generate trillions of rupees in revenue and meet its tax collection target for the current fiscal year by curbing illicit trade and smuggling in the country.

According to recent reports, the Federal Board of Revenue (FBR) has failed to meet its tax collection target in the first quarter of the current fiscal year by Rs96 billion. During this period (July-September), the FBR collected Rs2,556 billion against expected receipts of Rs2,652 billion.

The FBR has a gigantic task ahead where it has to achieve the ambitious tax collection target of Rs12,970 billion for the current fiscal year. It is confronting a difficult situation and is required to notch up nearly 40% growth in revenue over the remaining three quarters – from October 2024 to June 2025.

"To meet these tax targets, the government must plug loopholes that lead to tax leakages and intensify enforcement efforts," remarked Osama Siddiqui, a macroeconomic analyst.

He said that Pakistan's government must not only enhance enforcement mechanisms but also address the root causes of tax evasion, which included illicit manufacturing, smuggling and other forms of tax evasion.

It is worth noting that the government could generate over Rs2 trillion annually by curbing smuggling and tax leakages in key sectors such as real estate, pharmaceutical, tobacco, tyres, lubricants and tea.

The real estate sector alone accounts for approximately Rs500 billion in annual tax evasion, while the illicit tobacco trade results in losses of Rs310 billion. Tyre and lubricant sectors witness tax evasion of Rs106 billion and the pharmaceutical industry incurs losses of Rs65 billion annually.

Additionally, smuggling through Afghan Transit Trade costs the national exchequer at least Rs1,000 billion in import-related tax revenue.

"In light of these alarming figures, the government and its economic team must not focus solely on achieving tax targets by collecting taxes from existing resources and increasing tax rates. Instead, they should aim to generate revenue by bringing the undocumented sector to the tax net and eliminating smuggling into the country," he added.