IMF endorses PKR 166B cut in Pakistan's tax target due to flood, inflation

The International Monetary Fund (IMF) has allowed Pakistan to revise its tax revenue target downward by PKR 166 billion, bringing the new target for the current fiscal year to PKR 13.965 trillion, down from the earlier target of PKR 14.131 trillion, sources told Nukta.

According to official sources, the downward revision is primarily due to two key factors, a PKR 80 billion loss caused by recent floods, which severely disrupted economic activity in the affected regions, and a PKR 86 billion shortfall resulting from lower-than-expected inflation during the first quarter (July-September) of the current fiscal year.

Combined, these two factors contributed to an overall tax collection shortfall of PKR 176 billion in the first quarter.

However, the IMF has only allowed a downward revision of PKR 166 billion, leaving a PKR 10 billion gap still unaccounted for.

Sources revealed that the Federal Board of Revenue (FBR) is also likely to miss its October tax collection target by over PKR 80 billion. The monthly target was PKR 1.075 trillion.

Moreover, FBR’s internal projections indicate that total tax collection for FY25 could fall short by over PKR 700 billion, raising concerns about the government’s ability to meet overall revenue commitments under the IMF program.

In recent meetings, IMF officials reportedly proposed increasing sales tax and income tax at the import stage to bridge the revenue gap. However, the FBR team strongly opposed the proposals, arguing that relying on import stage taxes would be counterproductive and would not contribute to sustainable revenue growth.

Given the continuing shortfall, sources say the IMF is likely to push for additional revenue measures after the end of the second quarter (December). If the FBR’s performance does not improve significantly, new tax adjustments or structural reforms may be on the table.