Performance of federal tax revenues
Publishing date: 02 December 2025
Published in: Business Recorder
The Federal Board of Revenue (FBR) has released the Revenue Division’s Year Book for 2024-25. This is an extremely useful publication in terms of highlighting the trend in the level and composition of tax revenues from the income tax, sales tax, customs duty and the excise duty.
The Year Book confirms the exceptional performance in terms of the growth rate of tax revenues in 2024-25. This is estimated at 26.1 percent in 2024-25, as compared to the relatively low growth rates of 9.1 percent and 9.4 percent, respectively, in the rupee value of the tax bases of the GDP and imports.
However, the opposite outcome is with respect to attainment of the revenue target set in the federal budget for 2024-25. The target was Rs 12,970 billion, while the actual revenues are of Rs 11,744 billion, implying thereby a large absolute shortfall of Rs 1,226 billion, equivalent to 9.5 percent of the target.
The original target was apparently revised downwards to Rs 11,901 billion later in 2024-25, probably in agreement with the IMF. As such, the shortfall indicated by the FBR in the Year Book is only Rs 157 billion.
There is a need to recognize that the original revenue target was very ambitious, with the expectation of growth over the actual level achieved in 2023-24 of 39 percent.
Such an ambitious target was clearly based on very optimistic expectations about the growth in the tax bases and large yield from the taxation proposals in the budget.
The growth in the various tax bases has been limited by a quantum drop in the rate of inflation, from 23 percent in 2023-24 to only 4.5 percent in 2024-25. The GDP growth rate has been low at under 3 percent. Also, the rupee value of imports has increased by only 5.4 percent, with the rupee remaining virtually unchanged in value throughout the year.
Therefore, the actual growth rate of 26 percent in the FBR revenues represents exceptional growth in relation to the tax bases and efforts by the FBR need to be recognized. The federal tax-to-GDP ratio was 8.9 percent in 2023-24. The high growth rate in tax revenues has led to an increase in the ratio to 10.2 percent of the GDP. A 1.3 percent of the GDP increase in the tax-to-GDP ratio in one year has seldom been achieved before.
The individual tax revenue growth rates are high, with the exception of customs duty. It is 32.8 percent in the case of the excise duty, 27.9 percent in income tax, 25.9 percent in the sales tax and 16.4 percent in the customs duty.
There is need to identify the sources of growth in the revenues from different taxes. Within the income tax, the fastest growth is in collection on demand of 110 percent and 37 percent in payments with returns. However, combined these two sources account for only 9 percent of the total income tax revenues.
The major sources of withholding taxes and advance tax have shown a moderately high growth rate of almost 24 percent. The growth in withholding tax on salaries has been exceptional at 54.7 percent. This is partly a reflection of rising marginal tax rates with nominal increases in income.
The good news is that the advance taxes on sales of retailers and wholesalers have shown an exceptional growth of 133 percent, although the amount is still low at Rs 63 billion. The withholding tax on contracts has also yielded a high growth rate of 39 percent.
The real surprise is that despite falling corporate profitability, the advance tax revenues have shown a relatively high growth rate of 23.9 percent. This may partly be due to revenues from the super tax.
Turning to the second major source of revenue, the sales tax, the growth rates in the domestic and imported sales tax are 32.4 percent and 22.4 percent respectively, leading thereby to an overall growth rate of almost 26 percent. Within the sales tax, the fastest growth of revenues is in motor cars, cement and electrical energy. Clearly, the withdrawal of curbs on import of vehicles has implied extraordinary growth in revenue of 158 percent. Removal of restrictions has also facilitated much higher revenues from the sales tax on imports from items like electrical goods.
A similar pattern is observed in customs duty, with an overall more moderate growth rate of 16.4 percent. Here again, much of the increase in revenues is from vehicles and electrical goods. The very high growth rate in excise duty revenues of 32.8 percent is due to a more than doubling of revenues from cement and inland travel by air. However, there is evidence of a lack of success in tackling tax evasion in the production of cigarettes. Revenues from this industry have declined by 4 percent.
There is need to highlight why there was a big shortfall in revenues in relation to the original revenue target. This was partly due to decline in overall tax revenues from Rs 781 billion in 2023-24 to Rs 754 billion in 2024-25 in POL products. This is attributable to the 15 percent decline in the rupee value of POL imports.
The ongoing financial year continues to provide a big challenge to the FBR. The targeted increase in annual revenues is 20.3 percent. The actual growth rate achieved in the first quarter is only 12.5 percent, implying thereby a shortfall already about Rs 200 billion.
The performance will be influenced largely by the growth in the tax bases. This will depend on the real growth rate of the economy, the rate of inflation, the change in the nominal exchange rate and so on. The IMF will continue to place emphasis on enhanced fiscal effort to achieve the federal revenue target for 2025-26, even in the absence of favourable conditions.
