FBR Tax Shortfall Reaches Rs683 Billion as IMF Allows Gradual Fuel Levy Increase

Pakistan’s tax collection gap has grown significantly this fiscal year. The Federal Board of Revenue missed its target by Rs683 billion in the first ten months of 2025-26.

Official data shows the FBR collected Rs10.26 trillion in taxes between July and April. This amount was far below the revised target agreed with the IMF. The growing shortfall is putting pressure on the government to find new sources of revenue while staying within the IMF programme.

IMF Allows Gradual Fuel Levy Increase

To reduce the burden on consumers, the IMF has allowed Pakistan to increase the petroleum levy in two stages. The full increase will not be imposed all at once from May 1. This was seen as a small relief for the public.

Prime Minister Shehbaz Sharif had asked the finance ministry to negotiate temporary relief from the IMF. The goal was to ease the immediate pressure while keeping the next loan tranche on track. Pakistan’s next $1.2 billion IMF loan tranche is expected to be approved later this month.

After negotiations, the government revised fuel levy rates. The levy on diesel was increased again. A small reduction was made on petrol tax. However, fuel prices still went up overall due to higher levy charges and fluctuating global oil prices.

Pakistan’s Commitment to IMF

Pakistan had committed to maintaining a petroleum levy of Rs80 per litre on both petrol and diesel under its IMF agreement. Officials said additional adjustments became necessary because of declining tax revenues and growing fiscal pressure.

The government is now heavily relying on petroleum levy collections to make up for weak tax performance. In the first ten months of the fiscal year, more than Rs1.33 trillion was collected through petroleum levies. The annual target is Rs1.468 trillion. The government is close to hitting that mark.

Tax Collection Growth Too Slow

Overall tax collection growth during July to April stood at just over 10%. This is far below the pace needed to reach the annual tax target of nearly Rs14 trillion.

Income tax collection reached Rs5.08 trillion but missed the target by Rs210 billion. Sales tax recorded the biggest gap. Collections reached Rs3.42 trillion but fell short by Rs382 billion compared to official estimates.

Federal excise duty also remained below target. Customs duty showed only modest growth because of slower imports and reduced business activity.

Refunds Also Reduced Net Collections

Officials said the FBR paid nearly Rs499 billion in tax refunds during the current fiscal year. More than Rs50 billion was paid in April alone. These refunds reduced overall net tax collections significantly.

IMF Conditions for Next Tranche

The IMF has linked approval of the next review and release of funds to Pakistan’s ability to improve tax enforcement. The fund also wants Pakistan to recover billions of rupees tied up in ongoing court cases.

Spending Cuts and Economic Concerns

The government is reducing development spending to maintain the primary budget surplus target agreed with the IMF. However, economists are warning that increasing fuel levies and cutting public spending may only provide short-term fiscal stability. They say these measures could further increase inflation and put more economic pressure on ordinary citizens.