Pakistan’s taxation and trade enforcement systems remain highly inefficient. The Federal Board of Revenue (FBR) has failed to adapt, digitize, or expand the tax base. This has resulted in a historically low tax-to-GDP ratio, declining from 9.22 percent in FY22 to 9 percent in FY24 on an annual basis.

India, in contrast, has a much higher tax-to-GDP ratio at 18 percent.

Inconsistent policies, political unwillingness, and a lack of organisational structure have contributed to this debacle.

The FBR missing its January 2025 revenue target by Rs 84 billion has further exacerbated the bleak situation, collecting Rs 872 billion against the Rs 956 billion target. This brings the cumulative revenue shortfall for the period from July 2024 to January 2025 to Rs 468 billion, further deteriorating Pakistan’s fiscal crisis. In response to FBR’s inefficiencies, the government has recently established a Tax Policy Office (TPO) under the Ministry of Finance, separating tax policy formulation from FBR’s tax collection functions.

As the budget deficit widens, the government needs to raise additional revenue without further burdening lower-income groups. Reform, it seems, is the only way forward.

In this regard, it is important to note that the US, for example, has the Internal Revenue Service (IRS) for tax collection, whilst the Treasury handles all tax policy-related matters. In theory, the creation of the TPO should lead to better revenue forecasting and a more stable tax policy, preventing last-minute tax hikes that disrupt........

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