ISLAMABAD: The Federal Board of Revenue (FBR) missed its revenue collection target by nearly Rs1.008 trillion in the first 11 months of FY25 due to slowing economic growth and a drop in imports, which impacted domestic sales tax collection.

The FBR collected Rs10.233tr between July and May against the budgetary target of Rs11.241tr. However, the collection is 26 per cent higher than the Rs8.11tr collected a year ago.

On a monthly basis, the FBR collected Rs932 billion in May against the target of Rs1.11tr projected for the same month, indicating a shortfall of Rs178bn. However, the collection is 22pc higher than Rs762bn collected a year ago, according to provisional data released on Saturday.

The shortfall highlights poor tax compliance, particularly concerning sales tax collection at the domestic stage, even after the removal of substantial exemptions on products such as stationery and infant formula. However, the sales tax collection continues to fall short of the anticipated target, indicating potential gaps in the collection process.

Low imports amid a slowing economy hit sales tax generation

FBR has introduced several digital measures to plug loopholes and more will be announced in the upcoming budget to promote a cashless economy.

The FBR has identified two key factors contributing to the significant shortfalls observed in May. The eight-day strike by farmers in Sindh, who blocked the main highway, has significantly disrupted the supply chain, resulting in a decline in sales tax collection.

Furthermore, the recent conflict with India has resulted in a decrease in port clearances. Nonetheless, the FBR has yet to quantify the actual impact of these two factors on the decline in revenue collection during May.

The IMF has revised the FBR revenue collection target for FY25, decreasing it to Rs12.33tr from Rs12.913tr, marking a reduction of Rs580bn. Independent economists estimate that real revenue collection in FY25 will be approximately Rs12tr.

The shortfall is largely attributed to reduced tax collection from imports, sluggish manufacturing growth and unexpectedly low inflation, which has dropped to a record 0.3pc in recent months.

In the last year’s budget, the government has imposed a stunning Rs1.761tr in new revenue measures for the current fiscal year. However, the revenue collection fell short of the target.

The FBR paid Rs458bn in refunds/rebates to taxpayers in 11MFY25, up Rs5bn from Rs453bn in the same period last year. However, May saw a decline to Rs29bn against Rs31bn in the same month last year.

In July-May, income tax collection totalled Rs4.9tr, exceeding the target of Rs4.586tr by Rs314bn. The income tax collection grew 27pc compared with last year’s Rs3.852tr.

The sales tax collection fell short of the target by Rs895bn in 11MFY25, totalling Rs3.503tr against the target of Rs4.398tr. The sales tax collection recorded a growth of 27pc compared with last year’s Rs2.765tr.

The customs collection also fell short of the projected target by Rs263bn to Rs1.157tr in 11MFY25 against the target of Rs1.420tr. The customs collection recorded a growth of 17pc compared with last year’s Rs991bn.

The Federal Excise Duty collection fell short of the target by Rs165bn to Rs673bn in 11MFY25 against the projected target of Rs838bn. The excise duty recorded a growth of 34pc over last year’s Rs503bn.

Published in Dawn, June 1st, 2025