Beyond Rs 13 trillion tax collection!

Every year, immediately after the close of the fiscal year, the nation is presented with a familiar narrative. The Federal Board of Revenue (FBR) announces a record collection, the government claims unprecedented success, and the debate revolves around whether the annual target has been achieved. This ritual has continued for decades irrespective of the government in power. The real question, however, is not whether collections reached another nominal high after downward revised target, but whether Pakistan today possesses a broader, fairer and more productive tax system than it had a year earlier. Fiscal year (FY) 2025-26 is no exception. According to unofficial figures, FBR provisionally collected around Rs 13 trillion — the highest nominal collection in Pakistan’s history. Predictably, this has been projected as an extraordinary institutional achievement (sic). These nominal collection figures, divorced from their economic context, actual revenue potential and accounting shenanigans, rarely reveal true performance of a revenue authority. They merely indicate the amount collected in current prices after taking undue advances and blocking bona fide refunds. This has been the central theme of our writings in these columns on tax administration for over two decades. We have consistently argued that FBR should be evaluated not merely by gross collections but by the quality of revenue mobilisation, expansion of the taxpayer base, reduction in compliance costs, prompt payment of refunds, decline in litigation and contribution to economic growth. A revenue authority exists to strengthen the economy, not merely to maximise annual collections through predatory extraction. The revised estimates contained in the Annual Budget Statement 2026-27 tell a more revealing story than the official celebrations. The government itself revised the original FY 2025-26 FBR target downward from Rs 14. 131 trillion to Rs 12. 983 trillion before fixing the FY 2026-27 target at Rs 15. 264 trillion—an increase of Rs 2. 281 trillion or 17. 57 percent over the revised estimate. Direct taxes were revised downward from Rs 6. 902 trillion to Rs 6. 432 trillion, while indirect taxes were reduced from Rs 7. 229 trillion to Rs 6. 551 trillion. The revisions themselves demonstrate that the original assumptions proved unrealistic and that any fair assessment of performance must be made against existing realities, rather than aspirational targets, vis-à-vis actual tax potential at federal level. Prom this perspective, the picture remains less impressive than official statements suggest. An independent Press report indicates that FBR still fell short of the International Monetary Fund (IMF) benchmark by Rs 975 billion, while every major tax head — income tax, sales tax, customs duty and federal excise duty — underperformed against expectations. More importantly, revenue growth remained below the growth of the nominal economy. This means that a substantial part of the increase in collections resulted from inflation and expansion of nominal GDP rather than any significant improvement in tax administration or widening of the tax base. There is another methodological weakness in the manner official performance is presented. The annual figure announced by FBR represents cash collected during the fiscal year, but cash collection is not synonymous with real revenue mobilisation. A substantial part of the reported receipts comprises advance taxes (even not yet due) and withholding taxes relating to future tax liabilities, while at the same time bona fide refund claims—already determined under law—are often withheld beyond the statutory period. Such timing differences inflate year-end collections without increasing the State’s real tax income and result in exaggerated targets for the next year. From an accounting perspective, they distort annual comparisons; from a constitutional perspective, they effectively compel compliant taxpayers to finance government operations interest-free and inflated payment to provinces under the prevalent Seventh National Finance Commission Award. A modern revenue administration should be evaluated based on net revenue honestly earned after recognising accrued refund liabilities, not merely gross cash retained at the close of the fiscal year to appease the IMF at the cost fiscal discipline. Equally important is the distinction between the country’s documented economy and its real economy. FBR’s enforcement machinery predominantly operates within the organised sector—corporate entities, banks, salaried persons, manufacturers, importers and large withholding tax agents. Independent studies, including those of the Pakistan Institute of Development Economics (PIDE), consistently show that our informal or shadow economy constitutes a substantial proportion of national economic activity. Although estimates vary depending upon methodology, they uniformly indicate that a significant share of production, trade and services remains outside the effective tax net. Consequently, each successive Finance Act extracts more from the same documented taxpayers while the vast untaxed segment of the economy continues to operate beyond meaningful taxation. This is not tax broadening; it is tax concentration. The burden is repeatedly shifted onto those already visible to the revenue authorities rather than extending the tax net to those who remain outside. The tax base remains fundamentally narrow. Agricultural income taxation continues to produce insignificant revenues despite repeated legislative changes and FBR’s power to tax it where provincial income tax is not paid on it. Large segments of wholesale and retail trade remain undocumented. Cash transactions dominate important sectors of the economy. Real estate continues to generate constitutional as well as administrative controversies. The digital economy remains only partially documented. Consequently, documented minority is forced to shoulder an increasing proportion of the national tax burden. This distinction explains why record nominal collections can coexist with a persistently modest tax-to-GDP ratio. Inflation, currency depreciation and nominal GDP growth automatically increase tax receipts even where no genuine improvement in tax administration occurs. The Chairman FBR has been celebrating collection in dollar terms of nearly US$46 billion, presenting it as an evidence of an unprecedented fiscal achievement (sic). Such claims may sound impressive in TV talk shows, press conferences and official presentations, but serious evaluation of tax administration requires looking beyond nominal figures and examining what lies beneath them. Pakistan’s GDP is officially projected to reach about US$452 billion for the current fiscal year. Thus, collection by FBR even in dollars terms will be 10. 18% of GDP! Ironically, while FBR leadership was congratulating itself, the World Bank downgraded its US$400 million ‘Pakistan Raises Revenue (PRR) Project’ from “Satisfactory” to “Moderately Satisfactory” because of poor progress in achieving its core objectives. One of the most neglected indicators of institutional efficiency is the treatment of refunds. Delayed refunds artificially inflate year-end collections while simultaneously depriving exporters and other compliant taxpayers of working capital. Such practices improve accounting statistics but weaken economic activity. No modern system of public finance can accurately portray net revenue without recognising legitimate refund obligations as liabilities of the State. Since the Finance Minister and FBR leadership keep on mentioning success in dollar terms, international comparison also exposes the hollowness of their claims. Consider Finland. With a population of less than six million and a GDP of approximately €374 billion, Finland collected about €84 billion in taxes during 2025. Pakistan, with a population exceeding 250 million and immense untapped economic potential, rejoices tax collection equivalent to about US$46 billion while maintaining one of the lowest tax-to-GDP ratios among comparable economies. The comparison is revealing. Finland does not achieve high revenue through withholding tax provisions, arbitrary notices, blocked refunds and coercive enforcement. It achieves revenue through broad-based taxation, high voluntary compliance, taxpayer trust, institutional credibility and an efficient welfare state. Pakistan, by contrast, cheers gross collection while overlooking the indicators that truly reflect institutional efficiency. Despite record nominal collections, Pakistan relentlessly faces rising public debt, persistent fiscal deficits and increasing debt-servicing obligations [‘Debt accumulation & failed fiscal model’, Business Recorder, July 10, 2026]. Taxation cannot be evaluated independently of fiscal outcomes. If higher collections coexist with deteriorating public finances, the problem lies not merely in tax administration but in the overall fiscal model. Sustainable public finance cannot be built upon extracting more from the same taxpayers every year while leaving vast segments of the economy outside effective taxation. Pakistan does not suffer from a shortage of taxation. It suffers from a shortage of taxable growth. Until fiscal policy shifts from extracting more from the documented economy to documenting more of the real economy, record collections will remain an accounting achievement rather than evidence of genuine fiscal reform. This is the benchmark against which FBR’s performance should be judged—not by the size of the annual collection, but by the strength, breadth and sustainability of the economy that produces it. Copyright Business Recorder, 2026

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