The shortfall in revenues has come after an outstanding performance by the FBR in 2024-25.

Total tax revenues reached Rs 11,745 billion, with an extraordinary growth rate of over 26 per cent. Consequently, the tax-to-GDP ratio at the federal level went up from 8.8 per cent of the GDP to 10.2 per cent of the GDP in one year.

The performance in the first three quarters of 2025-26 has fallen significantly short of the target.

The target was Rs 9,917 billion, whereas the actual collection has been Rs 9,307 billion.

This implies a shortfall already of Rs 610 billion, equivalent to 4.4 per cent of the revised downwards annual target of Rs 13,979 billion.

The original target for 2025-26 of FBR revenues was Rs 14,131 billion.

The required growth rate of revenues in 2025-26 to meet the lower revised target is still high at 19 per cent.

This requires a rise in the tax-to-GDP ratio in 2025-26 of 0.9 per cent of the GDP, from 10.2 per cent of the GDP in 2024-25.

As such, the target for 2025-26 remains ambitious.

What is the performance of individual taxes in the first three quarters? We look first at the income tax.

The target for 2025-26 is Rs 6,967 billion, with a required growth rate of 20.3 per cent.

The level of revenues in the first three quarters of 2025-26 is Rs 4,636 billion, with a shortfall of Rs 235 billion. The growth rate achieved is 12 per cent only.

Sales tax revenues are targeted at Rs 4,580 billion in 2025-26, with a growth rate of 17.4 per cent.

During the first three quarters, the tax collection has been Rs 3,104 billion, with a growth rate of 9 per cent. Consequently, the shortfall already is of Rs 313 billion.

The two smaller indirect tax revenues, the customs duty and the excise duty, have not shown much divergence from their targets.

The shortfall in the first three quarters is only Rs 30 billion in the case of customs duty.

Revenues from the excise duty have exceeded the nine-month target by Rs 5 billion.

Both taxes have shown relatively high growth rates in revenues of above 12 per cent.

There is a need to determine the extent to which the overall shortfall of Rs 610 billion in FBR is due to a divergence from the projected growth rates in the tax bases of different taxes.

The IMF Programme projected growth in the real GDP in 2025-26 is 3.2 per cent.

This growth rate has, in fact, been exceeded in the first two quarters, with the actual growth rate at 3.7 per cent.

The rate of inflation has been somewhat lower at 5.7 per cent, as compared to the projected growth rate of 6.3 per cent.

The tax base of imports has also shown lower growth, with the USD value increasing by 8.0 per cent, as compared to the target growth rate of 8.5 per cent.

There is a major deviation in the projection of one key determinant of the size of the tax base of the customs duty and the sales tax on imports.

The IMF projection for 2025-26 is that the value of the rupee will fall by over 12 per cent by the end of June 2026. However, in the first nine months, there has been no decline.

Adjustment for the lack of depreciation in the value of the rupee implies that the large shortfall of Rs 313 billion in sales tax revenues is largely due to the lower rupee value of imports.

This has probably also contributed to lower revenues from some withholding taxes in the income tax.

There is a need to assess the likely outcome in the fourth quarter of 2025-26 of FBR revenues.

The commencement of the Middle East war prior to the start of this quarter has resulted in a big rise in the level of uncertainty about the global and national economy.

There could be shortages of imports if the stoppage of traffic continues in the Strait of Hormuz.

However, import prices are significantly higher for oil and other imports.

As such, it is not clear what the level of revenues from the sales tax on imports and customs duty will be in the fourth quarter of 2025-26.

The good news is that the highest-yielding tax base of large-scale manufacturing has been performing well.

It has shown a growth rate of 10.5 per cent in January 2026 and 5.8 per cent in the first seven months.

If this high growth persists, then it could also facilitate faster growth in revenues from income tax and sales tax on domestic production.

Finally, the preparations for the federal budget of 2026-27 will start shortly.

The IMF projection is only for a marginal increase in the federal tax-to-GDP ratio of 0.1 per cent of the GDP in relation to the target level in 2025-26.

However, with the likely shortfall of over Rs 900 billion in 2025-26, a bigger increase will be required.

An appropriate FBR revenue target for 2026-27 is close to Rs 14,500 billion, implying a target growth rate of over 12 per cent in a relatively uncertain environment.

The IMF Programme also envisages a significant increase in the provincial tax-to-GDP ratio from 0.9 per cent of the GDP in 2025-26 to 1.3 per cent of the GDP in 2026-27.

Clearly, the taxation measures in the forthcoming provincial budgets will be of greater importance.

Efforts will have to be made by the provincial governments to develop the agricultural income tax, property-related taxes and the sales tax on services.

Copyright Business Recorder, 2026

This article first appeared in the daily Business Recorder on April 7, 2026