FBR exceeds July target by Rs30b

The Federal Board of Revenue (FBR) collected Rs810 billion in July, exceeding its monthly target on the back of higher sales tax collection, but struggled in other areas, marking a steady start to the new fiscal year in which achieving targets is crucial for creating space for strategic spending.

According to provisional figures, the collection was Rs30 billion higher than the monthly target but only 7% more than the same period last year. The FBR collected Rs810 billion during the first month of this fiscal year compared to Rs757 billion in July 2025.

For the current fiscal year, the government and the International Monetary Fund (IMF) have set an annual target of Rs15.263 trillion for the FBR, requiring a 17% increase over last year's collection. Unlike in the past, the IMF has made it binding to meet the tax targets, with approval of the 6th loan tranche contingent on achieving the first-half target.

In addition, provinces have promised to give little over Rs1 trillion in grants to the federal government for defence and water resources projects, subject to the condition that the FBR collects Rs15.263 trillion in revenues. The government has also taken over Rs1 trillion in revenue and enforcement measures in the budget to enable the FBR to achieve the annual target.

According to provisional figures, the FBR collected over Rs300 billion in income tax, falling short of the target by Rs23 billion. One reason for missing the target was taking advances in June to achieve the three-time downward revised target. The income tax collection was also almost equal to last July. The government had also reduced withholding tax rates on property and the salaried class, which may be another reason for low collection in the first month.

Sales tax collection amounted to Rs358 billion, exceeding the target by Rs53 billion. The sales tax collection was also 18% higher than last year, breaking the cycle of missing collection targets. However, Rs275 billion, or 78% of total sales tax, was collected at the import stage.

In the budget, the government changed the law to collect sales tax at the market price of goods instead of at the factory gate on numerous items. This has reduced the chances of tax evasion but has broken the value-added chain.

Federal excise duty collection stood at Rs48 billion, slightly higher than the target and almost at last year's level. Customs duty collection stood at Rs105 billion, equal to the target and Rs2 billion higher than last year.

Out of total taxes, over Rs440 billion, or 54%, were collected at the import stage, where chances of evasion are lowest.

The FBR also received about 227,000 income tax returns in July after new return documents were uploaded on the website this week. The FBR also paid Rs98 billion in refunds, about Rs13 billion higher than last year.

However, the FBR has not been able to convince the government to ban major purchases by individuals who have insufficient declared white assets. The finance ministry had proposed to the cabinet that the federal government may approve July 1, 2026, as the activation date of the restriction under section 114C of the Income Tax Ordinance.

In early 2025, the FBR had proposed amendments in tax laws to ban the purchase of cars, cash withdrawals, investment in stocks and buying properties by persons having insufficient declared resources to buy these assets.

The federal cabinet has turned down the FBR's proposal. According to the law, which is dormant due to absence of the cabinet's approval to make it operational, an ineligible person cannot buy a car having value of over Rs7 million and a property of over Rs100 million. The ineligible person cannot make investment in stocks of over Rs50 million value and cannot withdraw cash of over Rs100 million from all bank accounts. The eligible person is the one who has declared sufficient liquid resources in his income tax returns to justify these purchases.