FBR's tax shortfall hits Rs683b

Revenue collection reaches Rs10.26tr; IMF approves two-step fuel tax hike

ISLAMABAD:

The International Monetary Fund (IMF) has allowed Pakistan to pass on the impact of the remaining agreed Rs53-per-litre increase in petroleum levy in two phases, as the tax shortfall of the Federal Board of Revenue (FBR) has further widened to Rs683 billion in this fiscal year.

According to an earlier understanding, the entire increase had to be recovered from consumers from May 1. Prime Minister Shehbaz Sharif asked his economic team to seek any possible relaxation without compromising the approval of $1.2 billion loan tranches on May 8.

With tax revenues going down, the pressure on the government to increase the levy rates has been on the rise, aimed at ensuring that the primary budget surplus target agreed with the lender remains on track.

As a result of the new understanding reached with the IMF, the government on Thursday reintroduced a roughly Rs29-per-litre levy on diesel but cut the tax on petrol by roughly Rs4 per litre. The new levy rate for petrol is Rs103.5 per litre. After these adjustments, the prices of both diesel and petrol were again increased.

According to an agreement with the IMF, Pakistan is required to impose Rs80-per-litre petroleum levy on both diesel and petrol. The government was already charging Rs107.4-per-litre levy. Due to fluctuations in international market prices and the need to increase the levy, petrol and diesel prices are set to rise significantly.

The prices are already out of reach of many Pakistanis and they face a double-edged sword of increase in rates as well as taxes.

PM Sharif had asked the finance ministry to get whatever possible relief from the IMF. The global lender has agreed to give only temporary relief by allowing the recovery of the remaining Rs53 per litre in two phases, said the officials. The remaining levy is likely to be increased next week; irrespective of whether global prices go down or not.

The government is facing huge challenges in meeting the FBR's targets whereas the levy collection is exceeding the annual target. During the first 10 months of this fiscal year, the levy collection amounted to over Rs1.330 trillion. The annual target is Rs1.468 trillion.

Compared to this, the FBR received Rs10.26 trillion in taxes for the July-April period of fiscal year 2025-26, facing a huge shortfall. There was a shortfall of about Rs683 billion compared to the downward revised target. The IMF has already refused to further slash the annual target of Rs13.98 trillion.

The 10-month increase in revenue collection was just 10.5%, which was half the rate needed to reach the annual target. The FBR paid Rs499 billion in tax refunds, including Rs51 billion in April. The government is offsetting the tax shortfall with the increase in petroleum levy rates and by drastically reducing development spending. This is done to achieve the primary surplus target agreed with the IMF, but the policy is giving an artificial sense of fiscal stability.

The IMF has also linked the approval of the third review and the release of $1.2 billion loan tranches with the FBR's ability to recover Rs322 billion in court cases.

Details showed that the FBR collected Rs5.08 trillion income tax in July-April 2025-26, missing the goal by a margin of Rs210 billion. The receipts were 13.6% higher than last year. The amount is inclusive of over Rs200 billion that the FBR recovered as super tax after the court ruled in its favour.

Sales tax collection amounted to Rs3.42 trillion, behind the target by a huge margin of Rs382 billion. It was higher by 8% over last year. Federal excise duty collection reached Rs673 billion, which was 11% higher than the last fiscal year. The FBR missed the excise duty collection target by Rs14 billion.

Customs duty collection fell short of the target and stayed at Rs1.08 trillion. The 10-month target was missed by a margin of Rs79 billion. The increase in customs duty receipts was hardly 3.6%.

However, the cumulative tax collection at the import stage was Rs3.86 trillion during the first 10 months of the current fiscal year, which was Rs473 billion, or 14%, higher than the last fiscal year. The import-stage sales tax collection was Rs2.2 trillion, which was equal to two-thirds of the total sales tax collection in 10 months.

The FBR also missed the monthly target by Rs72 billion. Against the target of Rs1.029 trillion, the FBR collected Rs956 billion in April. The increase in the monthly collection was 13%, or Rs111 billion.