Pakistan revenue agency tops first-quarter collection target as sales tax drives growth

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Highlights

Federal Board of Revenue exceeds July–September target, collecting Rs3,083.5 billion net versus the Rs3,053 billion goal, driven by strong sales tax growth.
Sales tax net collection rises 11 percent year-on-year to Rs1,137 billion, contributing about 60 percent of total net tax increase, as enforcement and digital monitoring boost compliance.
Despite significant revenue growth, monthly collections need to accelerate further for FBR to meet its ambitious Rs15.264 trillion annual target for the current fiscal year.

First-quarter revenue performance and tax mix

As reported by Pakistan Business Recorder, the Federal Board of Revenue exceeds its revenue collection target for July to September, bringing in Rs3,083.5 billion against a target of Rs3,053 billion. Gross collection before refunds stands at Rs3,286.7 billion, above the target of Rs3,047 billion, while net tax collection rises about seven percent from Rs2,889 billion in the same period of the previous fiscal year.

The agency collects roughly Rs30.5 billion more than its quarterly target, with both the quarter and September beating targets by about one percent. September, the final month of the quarter, contributes Rs1,360.7 billion in net revenue against a target of Rs1,343 billion, up about 11 percent from Rs1,229 billion a year earlier.

Refund payments also increase, indicating the higher collection is not supported by delaying payments owed to taxpayers. The FBR pays Rs203.2 billion in refunds in the quarter, up from Rs159 billion a year earlier, with sales tax refunds rising to Rs130 billion from Rs112 billion and income tax refunds increasing to Rs51 billion from Rs32 billion.

Income tax, the largest part of federal tax revenue, increases about five percent to Rs1,437 billion from Rs1,365 billion, although it remains slightly below its head-wise target. Sales tax provides the main lift, with net sales tax collection rising 11 percent to Rs1,137 billion from Rs1,020 billion and exceeding its target by about eight percent, while gross sales tax collection climbs 12 percent to Rs1,266 billion.

Of the roughly Rs194 billion increase in net tax collection from a year earlier, sales tax contributes around Rs117 billion, or about 60 percent, while income tax adds about Rs72 billion. Federal excise duty collection rises three percent to Rs197 billion, broadly in line with target, and customs duty collection stands at Rs312 billion, little changed from a year earlier and marginally below target.

Budget relief, reform agenda and collection pressure

The first-quarter outcome reflects tax relief measures enacted through the Finance Act 2026, including lower income tax rates for salaried taxpayers, the abolition of the nine percent surcharge on salaried income above Rs10 million, and reduced super tax on some businesses. The budget also cuts withholding tax rates on property transactions, affecting salary deductions, company advance tax payments and property-related withholding collections from July 1.

For salaried taxpayers, the rate on annual income between Rs2.2 million and Rs3.2 million falls to 20 percent from 23 percent, the rate on income between Rs3.2 million and Rs4.1 million drops to 25 percent from 30 percent, and the rate on income between Rs4.1 million and Rs5.6 million declines to 29 percent from 35 percent. The 35 percent top rate now applies to income above Rs7 million instead of income exceeding Rs4.1 million.

Officials attribute the stronger sales tax showing to enforcement steps and digital monitoring of production and sales activity. The current quarter also falls in the third year of the FBR transformation drive launched under Prime Minister Shehbaz Sharif, whose government approves the plan in October 2024 and continues to review revenue and implementation progress.

Under that reform effort, Pakistan's tax-to-GDP ratio rises to 10.3 percent in fiscal year 2024-25 from 8.8 percent, crossing the 10 percent mark for the first time in more than a decade. The number of income tax return filers grows from 4.5 million to more than 7.2 million by June 2025, and a faceless customs assessment system is introduced.

In fiscal year 2025-26, the FBR collects more than Rs13 trillion, topping the revised target of Rs12.957 trillion, while paying Rs600 billion in refunds. For the current fiscal year, the agency still needs to sustain stronger quarterly momentum because its first-quarter net collection represents only about one-fifth of the Rs15.264 trillion annual target.

The extension of the return-filing deadline is expected to lift filings further, especially among non-salaried individuals, supporting efforts to document more economic activity and improve voluntary compliance. The first-quarter figures remain provisional and are due to be finalised after the accounts for the period are closed, FBR officials say.

In our earlier article on Malaysia’s Budget 2027 priorities, we outlined how the government aimed to balance fiscal constraints with continued development spending and public support measures such as subsidies. We also noted the phased implementation of the RM2,500 minimum wage—currently focused on larger firms—and the push for a wage-setting mechanism that avoids wage compression by lifting pay across skills and income tiers.

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