Pakistan’s next budget is built on hopes of tax enforcement rather than expansion of the tax base or broader structural reforms.
The numbers show a government struggling to balance its ledger: total expenditure of Rs18.8 trillion financed primarily through an aggressive tax collection target from existing taxpayers and significant domestic borrowing. Relying on tax enforcement alone is a risky strategy, most analysts note.
The government has anchored its tax projections on GDP growth of four per cent and inflation of 8.2pc, targeting a fiscal deficit of 3.6pc of GDP against a primary surplus of 2pc. The Federal Board of Revenue’s (FBR) tax collection is estimated at Rs15.3tr, a 17.6pc jump from the current year’s revised estimates. The federal deficit will be financed through domestic borrowings and provincial cash surpluses.
The increase in the FBR collection target is based on expectations of GDP expansion and inflation, delivering 70pc of additional autonomous growth in tax revenue. The remaining 30pc increase will be generated through enforcement measures without any additional taxation or expansion of the tax base. This makes enforcement-driven revenue collection the budget’s most consequential gamble.
With FBR’s collection growth target resting heavily on untested institutional mechanisms at scale, the margin of error is very thin
The government has rolled out digital tools, including faceless, technology-driven audits, digital dispute resolution, and mandatory e-invoicing for all registered taxpayers, as well as requiring banks to share high-value transactions for cross-matching with tax returns.
“The mandatory e-invoicing requirement, which extends even to exempt supplies with non-compliance triggering business suspension, represents perhaps the most significant reform in the budget. It forces documentation across the entire supply chains rather than just at formal entry points,” according to a financial analyst at a brokerage firm in Karachi.
Specific revenue measures include shifting fast-moving consumer goods (FMCG) to the Third Schedule, thereby moving sales tax collection to the manufacturer and import stages at retail price, which broadens the documented tax net across food, personal care, footwear, household goods, and several other consumer categories. Other revenue measures include a 1pc fixed tax for small shopkeepers, withholding tax on social media income at 5pc, a new federal excise duty on petroleum solvents, and a special excise duty on imported vehicles above 2,000cc.
These ‘reforms’, the authorities believe, would help boost tax revenues.
With interest payments consuming 43pc of every rupee spent, development investment remains severely compressed
At the same time, the government has reduced withholding tax on export proceeds from 2pc to 1.25pc and halved the export facilitation scheme processing period to nine months, which should ease working capital cycles.
To keep tech investors from fleeing, the government has extended the 0.25pc concessionary export tax until 2029 to support exporters. The pharma industry also caught a break with duty exemptions on cancer medicines.
But the biggest winner is real estate, where controversial deemed income tax on property is entirely axed. Advance tax on property purchase has been simplified, and reduced on sale, eliminating the cumbersome filer and late-filer distinction. The capital value tax on foreign assets of resident Pakistanis has also been abolished. The Rs71bn allocation for the Prime Minister’s Apna Ghar housing scheme provides a demand-side catalyst.
These measures are expected to boost exports and industrial output, and help the government meet its overall tax and GDP growth targets. The strategy’s biggest hurdle is FBR’s poor track record. It has consistently missed its annual targets, including the one for the outgoing year. “Asking the same institution to now deliver tax growth, largely through untested enforcement mechanisms, increases the likelihood of potential mid-year revenue shortfall and a subsequent mini-budget,” a Lahore-based tax lawyer argued.
Most analysts contend that the relief announced for the salaried class and businesses will create a significant hole in tax collection, the size of which remains unclear at present. This would be in addition to the one targeted to achieve through enforcement.
Analysts view it as a stabilisation budget that leaves the country’s core fiscal challenges unaddressed. They argue that the budget leaves the fundamental structure of the country’s fiscal challenge unaddressed. With interest payments consuming 43pc of every rupee spent, development investment remains severely compressed.
Domestic bank borrowing needed to finance the deficit will sustain pressure on the banking system and crowd out private credit. And with FBR’s collection growth target resting heavily on untested institutional mechanisms at scale, the margin of error for FBR is very thin.
Published in Dawn, The Business and Finance Weekly, June 15th, 2026