ISLAMABAD: With a 1.4 percentage-point increase in the tax-to-GDP ratio last year, mostly through additional revenue measures worth Rs2.5 trillion, the International Monetary Fund (IMF) now expects the federal tax contribution to remain stagnant over the next five years and a slight improvement coming from provinces. The latest IMF estimates suggest Federal Board of Revenue (FBR) receipts rose from 8.9 per cent of GDP in the fiscal year 2023-24 to 10.3pc in 2024-25, but still missed the Fund’s programme target of 10.7pc. For the current fiscal year, the IMF projects FBR revenue at 11.1pc of GDP, which would then remain flat at that level until FY30. In absolute terms, FBR revenue increased from Rs9.3tr in FY24 to Rs11.74tr in FY25, with a massive shortfall. For the current year, collections are projected at Rs13.98tr, implying a shortfall of Rs328 billion under existing assumptions. The IMF noted that tax revenue collection in FY25 fell short by Rs1.224tr relative to budget projections and by Rs524bn relative to the lender’s first review target. About Rs850bn of the shortfall relative to the budget reflected faster-than-expected inflation deceleration and lower-than-expected GDP growth in FY25. Forecasts provincial taxes to offset stagnant federal collections The inflation deceleration at the end of FY25 led to a revenue shortfall of Rs157bn relative to the first IMF review target. The remaining portion of about Rs380bn was broadly linked to administrative and enforcement challenges that remained unaddressed throughout FY25, chiefly because of prolonged settlement of tax court cases that delayed the recovery of significant revenue amounts. Overall revenues, including non-tax receipts, rose sharply to 15.9pc of GDP by the end of FY25 from 12.6pc in FY24. The Fund attributed the increase mainly to stronger receipts from the petroleum levy and State Bank profits. The IMF expects the petroleum levy to remain a key source of revenue, rising from Rs1.02tr in FY24 to more than Rs2.2tr by FY30. It projected the levy’s contribution at about 1.1pc of GDP over the medium term, rising to around 1.2pc in the current and next fiscal years before easing back. The Fund projected direct taxes to remain unchanged at 5.5pc of GDP through FY30, while the sales tax ratio is expected to hover around its existing level of 3.5-3.6pc of GDP. It said major contributions are projected to come from provincial taxes on the expectations of successful implementation of the agriculture income tax and sales taxes on services. The Fund expects the provincial tax-to-GDP ratio to increase from the current 0.9pc to 1.3pc of GDP in FY27, rise further to 1.6pc of GDP in FY28 and then stay flat until FY30. In absolute numbers, the four provinces that collected Rs929bn in FY25 are expected to deliver Rs1.22tr during the current fiscal and further improve their collection to Rs1.77tr in FY27. They would build upon this base to collect Rs2.5tr in FY28, Rs2.8tr in FY29 and cross Rs3.1tr in FY30. The Fund said projected FBR collections would depend on advancing reforms to raise revenues through tax policy simplification and base broadening, supporting fiscal sustainability and creating space for climate resilience, social protection, human capital development and public investment. It noted that FBR revenues rose 26pc year-on-year in FY25 to 10.3pc of GDP, a historically high level, but overall tax revenue still fell short of the target by 0.3pc of GDP, largely due to delays in resolving court cases over disputed taxes (0.4pc of GDP) and lower-than-expected inflation. Lower-than-budgeted federal subsidies and grants, estimated at 0.2pc of GDP, helped offset the impact of the revenue shortfall. The IMF said provinces had begun implementing new agricultural income tax (AIT) regimes, including measures to strengthen compliance and address underreporting. “However, significant obstacles to realising the full potential of AIT remain, notably fully operationalising information sharing between the FBR and provincial tax authorities,” the Fund observed, adding that the provinces have also ensured that all services, except for a limited list of exemptions, are subject to GST. It said the cross-country evidence suggests that countries that sustainably increase their tax-to-GDP ratio to 15pc have a significantly higher GDP per capita growth compared to countries whose tax ratio stalls around 10pc, as has been the case for Pakistan over a long time. In this way, the Fund projected the consolidated fiscal deficit at 5.4pc of GDP in FY25, easing to 4pc this year, before declining to 3.2pc in FY27 and FY28, and then to 2.8pc in FY30. Published in Dawn, December 22nd, 2025