Pakistan’s Federal Board of Revenue collected Rs 11.744 trillion in FY2025 — a record figure and a 26.3% jump from the Rs 9.299 trillion collected in FY2024. The headline number looks like progress. The underlying ratio tells a harder story.

Tax revenues as a share of GDP reached 10.6% in FY2025, up from roughly 8.5% five years ago. But the International Monetary Fund’s Extended Fund Facility, signed in 2024, requires Pakistan to hit 13% of GDP by FY2027. That is a 2.4 percentage point gap that has to be closed in two years, in an economy with structural obstacles to tax collection that have persisted for decades.

Why the ratio matters more than the rupee figure

A government that collects 10.6% of GDP in taxes is a government that borrows to fund almost everything beyond basic administration. Pakistan’s federal budget has run a primary deficit for most of the past decade. Interest payments alone now consume roughly 60% of federal revenues. When taxes are low, the borrowing gap fills in with domestic debt — which crowds out private credit — and external debt, which creates foreign exchange obligations. The tax ratio is not a technical metric. It is the hinge on which fiscal stability turns.

Pakistan vs. the region

For context: India’s tax-to-GDP ratio sits at approximately 17%, Sri Lanka at 11% despite its recent fiscal crisis, Turkey near 20%, and the OECD average at 34%. Even Bangladesh, with a per capita income lower than Pakistan’s a decade ago, collects a higher share of its economy in taxes. Pakistan is not underperforming because its economy is uniquely poor. It is underperforming because large, politically protected segments of the economy pay very little.

The structural problem

Three factors keep the ratio stuck. First, agriculture — which accounts for roughly 22% of GDP — is largely exempt from federal income tax under a constitutional arrangement that routes agricultural taxation to provinces, which rarely collect it in full. Second, an informal economy estimated at 36% of GDP is largely invisible to FBR’s systems. Third, the retail and wholesale trade sector, one of the largest in the economy, has historically been undertaxed relative to its contribution to output.

The consequence is a narrow tax base: roughly 3.5 million active income tax filers in a country of 240 million people. The manufacturing and salaried class carry a disproportionate share of the burden, creating equity problems and generating political resistance to further formalization.

What FY2025’s 26.3% growth actually means

The jump in FBR revenues is real, driven partly by inflation — nominal GDP grew, pulling tax collections up in rupee terms — and partly by genuine compliance improvements under the IMF program. Direct taxes grew 27.8%. Federal Excise Duty grew 32.7%. But a significant portion of the growth is inflation-linked rather than structural: when CPI is running at double digits, nominal revenues rise mechanically.

To sustainably hit the IMF’s 13% target, Pakistan needs structural reforms — agricultural income tax, retailer formalization, property tax digitization — that go beyond inflation-assisted collection growth. FY2025’s record collection is a milestone. Whether it marks the beginning of structural improvement or a high watermark that reverts when inflation eases is the question worth tracking.

Sources: FBR Revenue Division Year Book 2024–25; IMF External Data Mapper, Pakistan profile; World Bank Tax Revenue Data; SBP Annual Report FY2025, Chapter 4.