SOHAIL SARFRAZ
ISLAMABAD: Total tax revenue is projected at 12.6 percent of the gross domestic product (GDP) for 2024-25 against original target of 12.3 percent based on expected recovery of Rs 367 billion in litigation, identification of high-risk taxpayers in retail/real estate/corporate sectors, digital value chain monitoring, detection of irregularities in sales tax returns, monitoring of imports and increases in withholding taxes on unregistered retailers.
This was noted in the International Monetary Fund (IMF) report titled “First review under the Extended Fund Facility (EFF) arrangement” while projecting Federal Board of Revenue’s (FBR) collection at 10.7 percent of GDP for outgoing fiscal year (2024-25) against original target of 10.6 percent.
Break-up revealed that direct taxes were projected at 4.8 percent, Federal Excise Duty (FED) at 0.9 percent, sales tax at 3.7 percent and customs duty at 1.3 percent of the GDP for 2024-25.
The non-tax revenue has been estimated at 3.3 percent of the GDP in 2024-25 against the original target of 3 percent.
Tajir Dost scheme has underperformed, the report noted though it acknowledged that there were increases in withholding taxes on unregistered retailers which yielded positive results that included a 51 percent year-on-year in filers among (large) retailers, wholesalers, and traders, and a 38 percent increase in filers with positive tax liabilities as of January 2025.
A new indicative target (new IT) on income tax revenue from small traders group has been introduced to monitor progress on bringing them into the tax net. To further improve compliance, a bill has been submitted to Parliament proposing the elimination of the “non-filer” category, which if approved would restrict non-filers from engaging in key economic transactions such as vehicle and real estate purchases, the report added.
The structural benchmark on provincial Agricultural Income Tax (AIT) legislation was not met end-October, but legislation was subsequently passed in February 2025. The new tax regimes apply on income from January 1, 2025, with the tax liability for the second half of 2024-25 collected in September 2025. In collaboration with the World Bank and the IMF, provinces are developing comprehensive implementation plans to ensure effective enforcement of the new legal framework by end-June 2025 including measures to develop a strong approach to compliance (and identify under-reported income) and launch targeted communication campaigns.
Revenue administration measures for reducing compliance gap will continue, focusing on compliance risk management (CRM), digital value chain monitoring, and detection of irregularities in sales tax returns, as well as closer monitoring of irregular import patterns and strengthened faceless customs assessments, the IMFG noted. The authorities are also actively pursuing the resolution of outstanding litigation cases (Rs 367 billion of a total of Rs770 billion under dispute in these cases), including those before the Supreme Court (PRs 43 billion), High Courts in Islamabad, Sindh, and Lahore (PRs 217 billion), and the Appellate Tribunal Inland Revenue (Rs 104 billion).
Resolving these cases will help clarify the legal basis for federal taxation of the disputed claims, thereby supporting future revenue by reducing uncertainty and discouraging future litigation.
The government assured the Fund that the tax authorities will continue efforts to resolve pending litigation cases in courts, with most of these cases expected to be settled by April and May 2025. This correspondent requested FBR to reveal the exact amount of recoveries however while he was informed that recovery is ongoing yet he was not given the exact figure.
The report further stated that the authorities should help ensure revenue-to-GDP reaches at least 12.3 percent of GDP in 2024-25 (with FBR collection accounting for 10.6 percent of GDP). The FBR pledged to diligently monitor key revenue streams, including income tax (encompassing advance payments and withholding taxes), sales tax, and the FED, the expansion of the taxpayer base, along with the resolution of pending litigation cases.
The IMF report further highlighted measures for strengthening tax administration. Compliance risk management (CRM) systems are now operational in the Large Taxpayer Offices (LTOs) in Islamabad, Karachi, and Lahore and have also been extended to the Corporate Tax Units. The FBR has integrated internal data and will incorporate third-party information, with the final goal of developing an automated CRM system, the report added. The FBR will identify high-risk taxpayers (including in the retail, real estate, and corporate sectors), augmenting the number of auditors to bolster enforcement and reduce tax evasion, and maintaining targeted mass nudging/notification strategies. Additionally, the government will expand the participation of retailers in the integrated Point-of Sale (POS) system and will closely monitor import declarations—particularly from importers exhibiting irregular patterns—and sustaining our anti-smuggling initiatives to facilitate revenue mobilization. The FBR will continue with the implementation of the system to monitor production and escalate anti-smuggling campaigns and reinforce checkpoint operations, particularly in the north-western regions, the report added.
