Tax shortfall

With the tax shortfall widening to Rs450 billion against the downward revised target for the first eight months of FY26 - and Rs670 billion against the original objective - fiscal management is once again under strain. The government's consideration of a second revision to the Rs14.13 trillion annual target reflects not so much prudence as a deeper structural weakness remains unaddressed.

By February, FBR had collected slightly under Rs8.1 trillion. Even this aggregate includes Rs125 billion recovered under the contentious super tax, revenue that could have been significantly lower had the Federal Constitutional Court not ruled in the FBR's favour in January. Sales tax collection has been particularly weak, falling short of the revised target by Rs322 billion. Income tax receipts, despite a 15% year-on-year increase, missed the mark by Rs160 billion, while customs duties also underperformed. Only FED surpassed expectations, that too marginally. The policy response, however, has centred on recalibration rather than reform. Revenue targets are adjusted downward, petroleum levy rates are increased, and development expenditure is curtailed - measures that help secure a primary surplus largely on paper. What emerges is fiscal stability achieved through compression, not expansion. During ongoing review discussions, IMF has indicated that immediate broadening of the tax base may not be feasible. Tax-evading sectors continue to enjoy a competitive advantage over compliant businesses while tax burden remains skewed toward the salaried class.

Target-setting itself must be grounded in credible reform sequencing. Repeated downward revisions erode confidence. If flexibility is sought from IMF, it must be accompanied by a time-bound and verifiable reform framework. Pakistan's challenge is not the absence of tax measures but their uneven enforcement. So long as the base remains narrow and compliance selective, each shortfall will be bridged by imposing further burdens on those already within the net and by cutting expenditure that fuels growth.