The International Monetary Fund (IMF) has raised fresh concerns about Pakistan’s fiscal management after authorities failed to meet the agreed tax collection targets and struggled with prolonged tax-related legal disputes.

According to The Express Tribune, unresolved court cases worth more than PKR 170 billion are still pending with the Supreme Court’s Constitutional Bench, leaving the Federal Board of Revenue (FBR) unable to realize key recoveries that were factored into its collection estimates.

Initial discussions between the IMF mission and Pakistani officials, held on Thursday, largely centered on these shortfalls. These talks are part of the second review of Pakistan’s ongoing IMF programme, under which Islamabad hopes to unlock a critical USD 1 billion tranche.

The review will continue until October 8 and will also include assessments of Pakistan’s USD 1.4 billion climate resilience programme. This round of consultations also marked the exit of Julieth Pico Mejia, the IMF’s outgoing tax expert for Pakistan, who will be succeeded by a representative from Eastern Europe.

FBR performance remains below target. Against its annual goal of PKR 12.9 trillion, the board was only able to collect PKR 11.74 trillion. This shortfall meant Pakistan also missed its agreed tax-to-GDP ratio target of 10.5 percent, although Minister of State for Finance Bilal Kayani pointed out that the ratio still improved by 1.4 percent compared to the previous fiscal year.

Officials attributed the shortfall to several macroeconomic factors. Lower-than-expected inflation, which dropped to 4.5 percent, reduced revenue inflows. At the same time, sluggish economic growth, especially in the large-scale manufacturing sector, weakened the effectiveness of new tax measures. 

These measures gained just over PKR 800 billion, far below the PKR 1.2 trillion projected in the national budget. Inflation itself only contributed PKR 766 billion to overall tax revenues, much lower than anticipated. Additionally, the downturn in the real estate sector further reduced tax collections, impacting one of the country’s historical revenue bases.

The IMF also sought clarity on pending litigation. Pakistan had earlier given assurances that the Supreme Court would deliver verdicts on high-profile super tax cases—particularly those involving oil firms and 10 heavily taxed sectors—by June. These rulings were expected to unlock PKR 177 billion in revenues. Yet, the court has not issued final decisions, despite commencing daily hearings. Only partial progress has been made so far: arguments have been completed in one case, and the government has concluded its presentation in another.

Due to this delay and the ongoing economic slowdown, the FBR is now unlikely to meet quarterly targets. With five days left in September, the board would need to collect PKR 140 billion daily to close the gap, a target officials themselves admit is nearly unattainable. So far, only PKR 2.4 trillion has been collected this quarter, leaving a wide shortfall just days before the deadline.

Despite these challenges, some positive signs were noted. Tax compliance levels are on the rise, with the number of income tax filers increasing from 7 million last year to 7.7 million for the 2024 tax year. 

Importantly, the government also reported a significant fiscal achievement: a primary surplus of PKR 2.4 trillion, surpassing IMF expectations and marking the largest such surplus in 24 years. This surplus was highlighted to demonstrate Islamabad’s broader fiscal discipline, even as structural weaknesses in tax collection remain unresolved.

While Pakistan’s government is trying to project fiscal stability through an improved primary balance and expanded tax base, the IMF remains concerned about structural inefficiencies. In particular, weak revenue mobilization, reliance on delayed legal recoveries, and vulnerability to economic slowdowns continue to undermine Pakistan’s fiscal targets, raising doubts about the sustainability of its IMF programme commitments.

Based On ANI Report