Government Considers New Tax Agency as FBR Misses Revenue Targets

Government Considers New Tax Agency as FBR Misses Revenue Targets

ByAftab Ahmed

The Pakistani government is contemplating the creation of a new tax collection body or the overhaul of the current system following the Federal Board of Revenue’s (FBR) consistent failure to meet its revenue targets despite multiple reform attempts.

FBR Performance and Reform Challenges

The FBR’s tax-to-GDP ratio remained stagnant at 10.3 percent in the previous fiscal year, missing the yearly revenue goal by more than Rs1.1 trillion. This year, the target is set at Rs15.263 trillion, requiring an increase of over 17 percent from the prior year. However, revenue growth recorded during the first quarter was only about 7 percent, with estimates projecting a final increase of approximately 12 percent, still leaving a substantial shortfall exceeding Rs650 billion.

Despite these shortcomings, the FBR highlights progress made under its transformation plan, noting that tax collections rose from Rs9.2 trillion to Rs13 trillion over two years. The organization has also rolled out initiatives such as faceless Customs assessments, digital invoicing, and an AI-driven risk management system for tax audits.

Plans for Restructuring and Government Deliberations

At a high-level meeting recently, the possibility of establishing a new tax authority was proposed. The FBR chairman, Rashid Langrial, has since instructed officials to draft a restructuring plan, to be presented to Prime Minister Shehbaz Sharif on October 19. Any establishment of a new agency would necessitate amendments to the FBR Act of 2007 and several tax laws.

While discussions are ongoing and no formal decisions have been made, it is understood that the existing FBR would not be abolished; employees opting not to transfer to the new setup would remain until retirement. The FBR has dismissed reports of outsourcing tax collection duties to the private sector as unfounded.

Implications for Pakistan’s Economy

The persistent underperformance of the FBR in boosting tax revenues poses significant challenges to Pakistan’s economic stability and fiscal health. Improving tax collection is critical to increasing public resources for development and social infrastructure. The potential formation of a new tax administration highlights the government’s urgency to enhance efficiency and widen the tax base, a move that could impact businesses and taxpayers across Pakistan.

Currently, only 6.9 million out of 19 million registered taxpayers filed returns this year, declining from 8.5 million the previous year, underscoring ongoing issues with compliance and tax culture in the country.

FBR officials emphasize that reforms are continuous and remain committed to improving collection processes, but acknowledge that more structural changes might be necessary to meet Pakistan’s revenue expectations.

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