As Pakistan approaches the close of FY 2024–25, the Federal Board of Revenue (FBR) has begun signaling its pre-budget policy direction — hinting at a blend of fiscal consolidation and structural tax reform. The coming months are expected to bring decisive changes in revenue policy, driven by IMF commitments, rising fiscal pressures, and the government’s aim to broaden the tax base without stifling growth.
Evolving Tax Policy Landscape Before Budget 2025–26
Pakistan’s tax policy traditionally tightens toward the end of each fiscal year as revenue targets face slippages. However, this cycle carries greater significance. With the IMF’s Extended Fund Facility (EFF) review approaching, the Finance Division and the FBR are under pressure to present a credible fiscal plan for FY 2025–26. This has placed renewed emphasis on tax mobilization, enforcement reforms, and expenditure rationalization.
The upcoming budget is likely to reflect continuity in the government’s medium-term revenue strategy, with incremental but critical changes to tax policy frameworks to improve predictability, compliance, and equity.
FBR’s Pre-Budget Policy Signals and Consultations
The FBR has already begun internal consultations with key ministries, provincial revenue authorities, and business chambers. Early signals point to three reform directions:
- Eliminating tax exemptions that distort the base, particularly in the real estate and wholesale sectors.
- Digitizing tax administration, including e-filing, e-invoicing, and risk-based audits.
- Aligning direct and indirect taxation to minimize cascading and ensure neutrality.
The FBR’s pre-budget circulars and stakeholder consultations, as reported by Finance Division sources, emphasize the need to strengthen compliance through enforcement, not just policy tweaks.
Key Focus Areas: Broadening the Base, Documentation, and Compliance
Pakistan’s tax base remains narrow — with fewer than 4.5 million active taxpayers in a population exceeding 240 million. The FBR’s policy focus is now shifting toward broadening the base through documentation. Retailers, freelancers, and small service providers are likely to face new registration drives and transaction-level monitoring.
The reactivation of the Track and Trace System (TTS) in manufacturing sectors such as tobacco, cement, and beverages will be central to curbing leakages. Similarly, data integration between NADRA and FBR’s IRIS portal is expected to enable better compliance tracking and taxpayer profiling.
Revenue Pressures and IMF Commitments
Pakistan’s ongoing IMF program requires consistent fiscal consolidation — including raising the tax-to-GDP ratio to at least 12.5% in FY 2025–26. The Fund’s latest review emphasized improving policy efficiency rather than increasing rates.
This implies rationalization of sales tax exemptions, removal of preferential treatments, and a move toward progressive direct taxation. The Finance Division’s medium-term fiscal framework also envisions enhanced provincial coordination under Article 160 of the Constitution to ensure harmonized tax structures across the federation.
International Comparisons: Regional Tax Reform Experiences
In India, pre-budget tax reforms have focused on simplifying compliance through the Goods and Services Tax (GST) and digital filing systems, significantly improving efficiency. Bangladesh has introduced real-time VAT monitoring and expanded electronic tax filing to small and medium enterprises.
Pakistan’s tax policy framework is gradually moving in a similar direction — but progress depends on institutional coordination and public trust in the FBR’s digitalization efforts.
Policy Recommendations
- Institutionalize a Pre-Budget Policy Paper: Publish a transparent tax policy outlook before each budget cycle.
- Strengthen Data Sharing: Integrate FBR, NADRA, and SECP data to capture unregistered economic activity.
- Simplify Direct Tax Codes: Reduce complexity to encourage voluntary compliance.
- Digitalize Enforcement: Expand e-audit, e-invoice, and digital taxpayer assistance.
- Enhance Provincial Coordination: Harmonize tax regimes under the National Tax Council for consistency.
Conclusion
As the fiscal year draws to a close, Pakistan’s tax policy changes will define its fiscal credibility heading into FY 2025–26. The FBR’s pre-budget signals suggest a pragmatic shift toward modernization, digital enforcement, and policy coherence. Sustained political commitment and transparent engagement with taxpayers will determine whether these measures lead to lasting fiscal stability or remain short-term adjustments to meet IMF benchmarks.
This article was published on publicfinance.pk.
FAQs (for FAQ Schema)
Q1: What are FBR’s main focus areas before the FY 2025–26 budget?
FBR is focusing on broadening the tax base, digitizing administration, removing exemptions, and improving compliance through data-driven enforcement measures.
Q2: How will IMF commitments influence Pakistan’s upcoming tax policy?
IMF conditions require Pakistan to enhance revenue mobilization without raising rates — focusing instead on removing distortions and increasing efficiency.
Q3: What digital reforms are expected from FBR before the next fiscal year?
The FBR plans to expand e-invoicing, e-filing, and automated audit systems while strengthening the Track and Trace System to curb tax evasion.
