ISLAMABAD: Facing limited room for fresh tax measures, the Shehbaz Sharif-led coalition government has resorted to rebranding taxation — shifting from “broadening the tax base” to pursuing “equity” — in an effort to justify higher taxes on lower-income segments. This transition comes as the government eyes a record revenue target of nearly Rs14 trillion for FY26, a 22 per cent increase over projections for the outgoing fiscal year.
Tied to its commitments under the International Monetary Fund (IMF) programme, the government estimates autonomous revenue collection at Rs12.845tr, based on 4.2pc GDP growth and 7.5pc inflation.
To meet the ambitious target, the government will need an additional Rs655 billion in new tax measures and another Rs400bn through enforcement — figures expected to be finalised in cabinet meeting ahead of Finance Minister Muhammad Aurangzeb’s budget speech.
The Federal Board of Revenue (FBR) faces significant challenges in meeting its tax collection targets, as doubts persist over its ability to enforce existing tax laws effectively.
Despite concerns about sluggish field operations, no substantial measures have been introduced to bolster enforcement in recent years. An initiative to provide operational vehicles to field officers was also withdrawn following backlash.
Meanwhile, Ministry of Finance officials continue to present optimistic projections, seemingly hoping for a tax windfall without acknowledging economic headwinds. Large-scale industries remain in decline, while sectors like real estate and consumption goods bear the brunt of excessive taxation, further dampening economic activity.
With key industries contracting and consumer confidence fading, the feasibility of achieving ambitious revenue targets remains highly questionable in the next fiscal year.The government’s proposed tax-to-GDP ratio target for FY26 is 12.3pc, comprising FBR’s share (10.6pc of GDP), provincial collections and the petroleum development levy (PDL).
Moreover, revenue collection could face further setbacks due to a lower-than-expected allocation for the federal Public Sector Development Programme (PSDP), which includes fewer new projects. The federal PSDP also remains notably smaller than those of Punjab and Sindh.
Compounding the issue, the federal government is now seeking financial contributions from Punjab and Sindh to fund dam construction, an unusual move that underscores fiscal limitations at the Centre. These factors create added pressure, as the federal government struggles to balance tax collection efforts with a constrained development budget.
