ISLAMABAD: Pakistan’s tax-to-GDP ratio slipped to 4.75% during the first half (July–December) of fiscal year 2025–26, even as the Federal Board of Revenue (FBR) posted solid growth in overall tax collections, official figures from the Ministry of Finance revealed.
The ratio declined slightly from 4.90% recorded in the same period last year. This came despite FBR collecting Rs6.16 trillion in 1HFY26, up from Rs5.63 trillion in 1HFY25 — marking a 9.55% year-on-year increase. However, Pakistan’s expanding GDP, estimated at Rs129.57 trillion, grew faster than tax revenues, resulting in the lower ratio. For comparison, GDP stood at Rs114.69 trillion in the corresponding period of FY25.
Data shows consistent growth across both direct and indirect taxes. Direct tax revenues rose 8.9% to Rs3.03 trillion, compared to Rs2.78 trillion a year earlier. Indirect taxes increased by 10% to Rs3.13 trillion, up from Rs2.84 trillion.
Within indirect taxation, performance varied across segments. Customs duty collections climbed 7.46%, sales tax rose by 10%, while federal excise duty (FED) surged 15.48%, reflecting stronger compliance and gradual recovery in selected consumption sectors.
Despite the dip in the first-half ratio, FBR officials remain confident of improvement in the remaining months of FY26. In FY25, Pakistan’s overall tax-to-GDP ratio strengthened to 10.24%, largely driven by higher revenue inflows during the second half of the year.
Authorities expect a similar rebound this fiscal year, supported by stricter enforcement, digital initiatives, and ongoing tax reforms. The FBR anticipates accelerated collections in the latter half, which could help lift the annual tax-to-GDP ratio and improve fiscal outcomes.
Economists caution, however, that lasting progress will depend on expanding the tax base, reducing dependence on indirect taxes, and improving economic documentation. A stronger and more stable tax-to-GDP ratio is widely viewed as essential for narrowing fiscal deficits, managing public debt, and ensuring sustainable economic growth.
