FBR’s tax target reduced to Rs12.35 trillion as government revises economic framework with IMF

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have reached an agreement to revise the macroeconomic and fiscal framework for the current fiscal year, leading to a reduction in the Federal Board of Revenue’s (FBR) annual tax collection target from Rs12.97 trillion to Rs12.35 trillion.

This adjustment entails a downward revision of Rs620 billion, despite the tax-to-GDP ratio target remaining unchanged at 10.6 percent.

The FBR has already recorded a revenue shortfall of Rs600 billion during the first eight months of the current fiscal year. Consequently, the revenue targets for the remaining four months (March to June) will be adjusted monthly.

In conjunction with this, the IMF has mandated the finance ministry to proportionately adjust expenditures to achieve the primary surplus target of Rs2.4 trillion stipulated for the fiscal year, taking into account the revision of the annual tax collection target.

In a written guarantee, the finance ministry will commit to adjusting expenditures in line with the lowered tax collection target, as stated by officials. They stressed, “There will be no mini-budget, and we have urged the FBR to align our target with the downward revision in nominal growth figures. The economy’s size has been revised from Rs123 trillion to Rs116.5 trillion for the current fiscal year, meaning the 10.6 percent tax-to-GDP ratio translates into the revised collection target of Rs12.35 trillion,” according to senior officials involved in discussions with the IMF, reported The News.

Agricultural tax now on par with corporate tax rates in Pakistan, IMF told

Currently, Pakistan and the IMF are engaged in discussions to finalise the first review under the $7 billion Extended Fund Facility (EFF), with policy-level negotiations expected to conclude on Friday. Both parties are likely to conclude the budget framework through virtual talks, or the IMF may dispatch a small team in early May 2025 to finalise the financial figures for the upcoming 2025-26 budget.

Describing the agreement as a significant breakthrough, officials noted that there has been a consensus on revising the nominal GDP growth rate target, which includes consumer price index (CPI)-based inflation. The real GDP growth target has been reduced from 3.6 percent to approximately 2 to 2.25 percent for the current fiscal year, while the average CPI-based inflation target has been adjusted downward from 12.5 percent to 7 percent.

The overall nominal growth reduction has led to a decrease in the economy’s size from Rs123 trillion to Rs116.5 trillion for this fiscal year.

According to a senior official, the FBR prepared for the IMF discussions through a “mock exercise,” wherein some internal officials simulated the role of the IMF review mission and posed potential questions. This preparation enabled the FBR to present answers to nearly all inquiries raised by the IMF visiting mission more effectively.

The official further indicated that they successfully persuaded the IMF not to increase tax rates despite witnessing the revenue shortfall in the initial eight-month period. The previously agreed contingency plan for raising tax rates through withholding taxes or Federal Excise Duty (FED) has been placed on hold, allowing both parties to establish a broader agreement.