ByThe taxation measures worth Rs1.4 trillion introduced in the budget have fallen short of expectations, with the government collecting Rs348 billion less than the five-month target. This outcome casts doubt on the effectiveness of any potential mini-budget in meeting the annual revenue target.
The Federal Board of Revenue (FBR) had projected that new tax measures would generate Rs491 billion during the July-November period. However, the actual collection stood at only Rs143 billion, according to the FBR’s internal assessment. Political leadership has been briefed on the 71% shortfall, attributed primarily to the economic slowdown, overly optimistic projections, and weak enforcement.
These measures were introduced as part of the International Monetary Fund (IMF) program to help achieve a roughly Rs13 trillion annual target. The shortfall was observed across income tax, sales tax, and federal excise duty collections, with income tax measures performing the worst. The real estate sector and traders, in particular, underperformed due to sluggish economic activity and lax enforcement. For example, withholding tax on property transactions yielded Rs47 billion—higher than the previous fiscal year but still below expectations. Similarly, tax collection from filer and non-filer retailers reached only Rs13 billion in five months, while the Tajir Dost Scheme contributed merely a few million rupees.
Notably, salaried individuals paid Rs198 billion during this period, exceeding last year’s figure by Rs72 billion and surpassing government projections by Rs20 billion. However, the FBR is not considering tax relief for the salaried class but is exploring reductions in tax rates for sectors such as tobacco, beverages, and real estate to boost revenue. Any such changes would need IMF approval during upcoming review discussions.
The government is also bracing for a significant revenue shortfall in December. With only 10 days left in the month, the FBR must collect an additional Rs920 billion to meet its target, having already missed its five-month goal by Rs341 billion. December’s tax collection performance will play a critical role in determining whether the IMF recommends introducing a new tax-laden budget.
Sales tax policy measures underperformed by Rs85 billion, primarily due to weak enforcement and restrictions on imports caused by limited foreign exchange reserves. Additional federal excise duty measures also missed their target by Rs113 billion. For example, a high duty on acetate filters used in cigarette production increased smuggling activities, further exposing enforcement challenges. Similarly, a 3% federal excise duty on home purchases failed to generate significant revenue.
Despite these setbacks, the authorities noted some gains from increased compliance, which contributed Rs342 billion in five months—Rs223 billion more than estimated. Improved income tax return filings accounted for Rs145 billion of this amount, although revenue from taxpayer audits decreased by 16%.
The FBR faces mounting pressure to bridge the revenue gap, with enforcement issues, economic constraints, and policy missteps hindering efforts to achieve fiscal targets.
