FBR Faces Rs468 Billion Revenue Shortfall Amid Fiscal Year 2025 Targets

The Federal Board of Revenue (FBR) is grappling with a significant revenue shortfall of Rs468 billion during the first seven months (July 2024 – January 2025) of the current fiscal year, raising serious concerns about Pakistan’s fiscal stability and its commitments to the International Monetary Fund (IMF).

Overview of FBR’s Revenue Collection Performance

In the first seven months of FY 2024-25, the FBR collected Rs6,496 billion, falling short of its assigned target of Rs6,964 billion. The gap reflects an alarming revenue shortfall that continues to widen monthly. The provisional collection for January 2025 was Rs872 billion, against a target of Rs956 billion, marking a monthly deficit of Rs84 billion.

Despite achieving a 29% growth in revenue compared to the previous month, the gap remains substantial. The revenue shortfall widened from Rs384 billion in the first half of the fiscal year (July-December) to Rs468 billion after January 2025.

This growing shortfall poses significant risks, especially with an impending IMF review mission scheduled for February or March 2025. The IMF’s evaluation will focus on Pakistan’s fiscal performance, and the FBR’s revenue slippages will undoubtedly be a critical point of discussion.

However, officials from the Ministry of Finance argue that the overall fiscal framework remains stable due to reduced debt servicing costs, following a series of policy rate reductions from 22% to 12%. While this has eased some economic pressures, the IMF is likely to scrutinize the persistent revenue gaps.

Meeting the IMF’s Revenue Targets: A Daunting Challenge

Under the IMF program, the FBR’s indicative revenue target for March 2025 is set at Rs9,168 billion. To achieve this, the FBR must collect an additional Rs2,772 billion over February and March 2025. This ambitious target underscores the enormity of the challenge ahead.

For the entire fiscal year, Pakistan has agreed with the IMF on an annual tax collection target of Rs12,913 billion, while domestically setting a slightly higher goal of Rs12,970 billion. Having collected Rs6,496 billion in the first seven months, the FBR now faces the daunting task of securing Rs6,474 billion in the remaining five months (February to June 2025).

Breakdown of January 2025 Revenue Collection

As of January 31, 2025, the FBR’s revenue collection stood at Rs872 billion, slightly below the desired target. While it is anticipated that final adjustments may push the total to Rs875 billion, the shortfall remains notable.

Key highlights from the revenue breakdown include:

• Tax refunds totaling Rs272 billion were disbursed in the first six months of FY 2024-25.
• Rs72 billion was collected from banks’ profits after imposing a 44% tax rate through a special ordinance.

These figures reflect the FBR’s efforts to mobilize revenue, but they also highlight the systemic challenges in meeting ambitious fiscal targets.

Factors Contributing to the Revenue Shortfall

Several factors have contributed to the FBR’s revenue shortfall:

1. Economic Slowdown: Reduced business activity has led to lower tax collections.
2. Policy Gaps: Inconsistent tax policies and frequent changes deter compliance.
3. Administrative Inefficiencies: Gaps in tax enforcement and collection mechanisms.
4. High Refund Payouts: Significant tax refunds reduce net revenue figures.
5. Limited Tax Base: Pakistan’s narrow tax base limits revenue potential.

Addressing these issues is critical for reversing the revenue shortfall trend.

The revenue shortfall has far-reaching implications for Pakistan’s economy:

• Increased Reliance on Borrowing: To bridge fiscal gaps, Pakistan may need to borrow more, increasing debt burdens.
• Strained IMF Relations: Failure to meet revenue targets could jeopardize future IMF disbursements.
• Budgetary Constraints: Limited revenue impacts funding for development projects and public services.
• Currency Depreciation Risks: Fiscal instability can weaken investor confidence, affecting the Pakistani Rupee.

FBR’s Strategic Measures to Boost Revenue

In response to the shortfall, the FBR is implementing several strategies:

1. Broadening the Tax Base: Introducing measures to bring more individuals and businesses into the tax net.
2. Enhancing Tax Compliance: Strengthening audit mechanisms and penalties for non-compliance.
3. Leveraging Technology: Utilizing data analytics to identify tax evasion and improve collection efficiency.
4. Engaging with Stakeholders: Collaborating with industries to address tax-related concerns and improve voluntary compliance.
5. Policy Reforms: Reviewing tax policies to eliminate loopholes and enhance revenue generation.

As Pakistan navigates the remainder of FY 2024-25, the FBR faces an uphill battle to meet its revenue targets. Success will depend on a combination of effective policy measures, administrative efficiency, and economic recovery.

The upcoming IMF review will be a critical juncture, influencing Pakistan’s fiscal trajectory and international financial standing. The government must demonstrate a credible plan to bridge the revenue gap, maintain fiscal discipline, and foster sustainable economic growth.