ISLAMABAD: Pakistan’s Tax-to-GDP ratio based on Federal Board of Revenue (FBR) collections declined during the first nine months of fiscal year 2025-26 despite a significant increase in overall tax revenues.
According to official data released by the finance ministry, the FBR tax-to-GDP ratio dropped to 7.19% during July-March FY26 compared to 7.62% recorded in the corresponding period of the previous fiscal year.
The decline came even as FBR revenue collection increased by around 10% on a year-on-year basis, indicating that the country’s economic expansion outpaced the growth in tax collection during the period under review.
The FBR collected Rs9.31 trillion during the first nine months of FY26 compared to Rs8.45 trillion collected during the same period of FY25.
Official figures showed that Pakistan’s GDP size increased to Rs129.57 trillion in 9MFY26 compared to Rs114.69 trillion in the corresponding period of the previous fiscal year.
Although tax revenues recorded healthy growth, the larger increase in GDP resulted in a lower ratio of tax collection relative to the overall size of the economy.
Economists consider the tax-to-GDP ratio an important indicator of a country’s fiscal capacity, revenue mobilization efficiency, and overall tax administration performance.
FBR collection of direct taxes increased to Rs4.64 trillion during July-March FY26 compared to Rs4.13 trillion recorded during the same period last year.
The rise in direct taxes mainly reflects higher income tax collection and improved enforcement measures introduced by tax authorities to strengthen compliance.
Meanwhile, indirect tax collection rose to Rs4.67 trillion in 9MFY26 compared to Rs4.32 trillion recorded a year earlier.
Indirect taxes, including sales tax, customs duties, and federal excise duty, continued to contribute a significant share to Pakistan’s total revenue collection.
Despite the increase in tax revenues, the decline in the tax-to-GDP ratio highlights ongoing structural challenges within Pakistan’s taxation system, including a narrow tax base, undocumented economic activity, and low compliance levels.
The government and international financial institutions, including the International Monetary Fund (IMF), have repeatedly emphasized the need for broad-based tax reforms to improve revenue generation and strengthen fiscal sustainability.
Analysts believe improving the tax-to-GDP ratio remains critical for reducing Pakistan’s reliance on borrowing, strengthening public finances, and supporting long-term macroeconomic stability.
