Pakistan’s 90 billion rupee tax shortfall fuels growing fiscal crisis

Pakistan’s economic situation is far from enviable as Islamabad’s tax target for December 2024 is expected to suffer from a colossal shortfall of 80 to 90 billion rupees, according to The News. This shortfall comes despite governmental efforts to boost taxation revenue by expanding the tax net.

There is a silver lining in the fact that the Federal Board of Revenue (FBR) is expecting a collection of 70 billion rupees as the deadline for corporate sector returns approaches. According to Geo News, this follows the announcement of the presidential ordinance to levy a staggering 44 per cent tax on banking sector returns.

The 44 per cent tax, however, is not as large as it used to be. The maximum rate had been negotiated down from 55 per cent as per an agreement for the tax year 2025.

The aforementioned agreement reveals that the FBR could raise a whopping 70 billion rupees from the banking sector, which would allow Islamabad to meet its taxation target.

As it stands, the FBR has faced a shortfall of 340 billion rupees in the first five months of the financial year (FY) 2024-25. The gap is the result of Islamabad setting the revenue target at 4.63 trillion rupees, while the FBR was only successful in collecting 4.29 trillion rupees. The numbers represent a revenue shortfall of 7.63 per cent from the targeted amount.

With December’s shortfall ranging between 80-90 billion rupees, the overall shortfall will rise by approximately 22.2 per cent. The shortfall in the FBR’s targeted revenue amount might increase to approximately 425 billion rupees, indicating the economy would close its first half of the fiscal year 2024-25 with a large deviation from its target.

It is concerning how Pakistan will manage to plug this shortfall in revenue, which is seemingly increasing without bounds. Experts are predicting a potential straining of ties between Islamabad and the International Monetary Fund (IMF) if the government does not implement strict corrective measures.

Finance Minister Muhammad Aurangzeb, however, displayed confidence in a public interview earlier when questioned about the shortfall in tax revenue. He further stated that the government is taking the necessary steps to boost taxation levels, which could be an effort to maintain the IMF’s goodwill.

Aurangzeb has also expressed great confidence in his claims regarding the IMF’s continued support in the near future. However, with the government lagging behind the revenue target by almost half a trillion rupees, it is difficult to judge if Islamabad can truly meet revenue targets in the future.