Pakistan, IMF near consensus on cutting FBR tax target to Rs13.45tr

Pakistan and the International Monetary Fund (IMF) are nearing a consensus on the revised macroeconomic and fiscal framework for the current fiscal year, under which the FBR’s tax collection will be revised downward to Rs13.45 trillion by the end of June 2026.

The IMF and Pakistani sides are holding virtual talks to strike a staff-level agreement under the $7 billion Extended Fund Facility (EFF).

The FBR will fail in achieving the tax-to-GDP ratio of 11 percent envisaged under the target agreed with the IMF for 2025-26. The FBR has faced a revenue shortfall of Rs428 billion in achieving the revised target in the first eight months of the current fiscal year.

Now it is projected that the FBR’s tax collection in terms of tax-to-GDP ratio will go up to 10.6 percent by the end of June 2026 against 10.3 percent achieved by June 2025. The IMF and Ministry of Finance have worked out that one percent of GDP hovers around Rs1,269 billion, so the overall FBR’s collection is projected to go close to Rs13.45 trillion till the end of June 2026 if it materialises at 10.6 percent of GDP. The government had envisaged FBR’s tax collection target of Rs14,130 billion with the approval of parliament, but with the consent of IMF, the FBR’s target was revised downward to Rs13,979 billion. The second time, the FBR’s target will be revised downward from Rs13.97 trillion to Rs13.45 trillion for the ongoing fiscal year. The Ministry of Finance will have to re-adjust the expenditure side to keep the fiscal deficit and primary surplus target in line with the IMF agreement. So far, both the sides revised the macroeconomic framework, as the Pakistani side argued that the real GDP growth was projected to touch the original target of 4 percent of GDP for the current fiscal year, with improved performance in the first quarter of the current fiscal year. Earlier, the IMF had revised downward the GDP growth rate at 3.2 percent for Pakistan in the aftermath of last super floods.

The CPI-based inflation is projected to stand at around 7 to 7.5 percent for the current fiscal year. Earlier, the Ministry of Finance had projected the CPI inflation in the range of 5 to 7 percent, but in the aftermath of geopolitical tensions and the ongoing war in the Gulf region, the price of fuel has gone up, so the inflationary pressures are expected to increase in the remaining months of the current fiscal year. On the external side of the economy, the SBP continues to purchase dollars from the open market in order to build up the buffer of foreign exchange reserves. The external sector is becoming more challenging due to the ongoing Middle East conflict. The current account deficit is expected to remain within the projected range of 0-1 percent of GDP in FY26.