In the hallowed halls of policy discourse, where optimism often clashes with harsh realities, the International Monetary Fund’s (IMF) Resident Representative to Pakistan, Mahir Binici, delivered a sobering reminder during a panel at the Sustainable Development Policy Institute’s (SDPI) conference. The discussion underscored Pakistan’s precarious fiscal tightrope. Binici urged the nation to elevate its tax-to-GDP ratio to 15 percent—a benchmark deemed essential for tackling intertwined economic woes and escalating climate threats.
Yet, as recent Federal Board of Revenue (FBR) data paints a picture of modest progress, the adage “lies, damned lies, and statistics” rings truer than ever. Headline figures may tout improvement, but a deeper dive reveals a troubling narrative of regressive burdens, stifled growth, and widening inequality that undermines the very foundations of sustainable recovery.
The FBR’s latest report heralds a breakthrough: the tax-to-GDP ratio climbed to 10.3 percent in fiscal year 2024-25 (FY25), a notable uptick from the five-year average of 8.7 percent. This marks the first double-digit achievement in over a decade, propelled by a 26.3 percent surge in overall collections to Rs13.254 trillion. At the forefront is a “quantum leap” in direct taxes, ballooning from Rs3.721 trillion in revised estimates for FY24 to Rs5.826 trillion last year—a 56 percent jump that ostensibly broadens the revenue base and eases reliance on indirect levies. Enforcement crackdowns played a starring role, netting Rs874 billion through audits and compliance drives, an eightfold increase from the prior year’s Rs105 billion. Sectors like sugar and cement bore the brunt, with Rs25 billion and Rs12.8 billion recovered respectively in the first half of FY25 alone, thanks to real-time monitoring tools.
But these numbers demand scrutiny, not applause. Discrepancies abound across official sources, eroding trust in the data. The IMF’s first review of Pakistan’s $7 billion Extended Fund Facility (EFF), completed in May 2025, charts a steadier ascent: from 10 percent in FY20 to 12.6 percent in FY25, with interim figures at 10.3 percent (FY21), 10.4 percent (FY22), 10.5 percent (FY23), and 10.6 percent (FY24). The Finance Division’s July 2025 Outlook corroborates the collection spike but pegs FY24 at Rs10.472 trillion, highlighting how nominal GDP revisions can inflate ratios without genuine structural shifts. Such inconsistencies aren’t mere footnotes; they obscure the true drivers of “progress,” often masking pain inflicted on the vulnerable.
Consider the composition of these gains. Up to 75-80 percent of direct taxes stem from withholding on consumer purchases—a mechanism the Auditor General of Pakistan flagged years ago for abandonment, yet it persists like an unwelcome guest. Enforcement windfalls, exceeding Rs300 billion in FY25, targeted sugar and cement mills, with fertilizer units now in the crosshairs. The fallout? Costs passed downstream to consumers, inflating prices for essentials like sugar and building materials. In a nation where food and shelter devour household budgets, this regressive ripple exacerbates poverty. The World Bank’s latest assessment paints a grim canvas: 42.4 percent of Pakistanis—over 100 million souls—languish below the $3.65 daily poverty line in FY25, unchanged from the prior year despite stabilizing inflation. Under revised thresholds, the figure swells to 44.7 percent at $4.20 per day, with extreme poverty tripling to 16.5 percent. Economic growth, clocking a tepid 2.6 percent, fails to dent these depths, as agricultural woes—40 percent rainfall deficits and pest invasions—hammer rural livelihoods.
The pandemic’s shadow lingers as a contextual culprit. Five COVID-19 waves from FY20 onward ravaged output and collections, with FY22’s 6 percent GDP “boom” propped by inventory drawdowns rather than robust production. Inventory-led growth, while statistically flattering, generates few jobs and evaporates quickly, leaving poverty entrenched. Contrast this with export powerhouses like textiles, surgical goods, carpets, and leather—pillars of Pakistan’s economy—that howl over input cost surges. Utility tariffs and a policy rate double regional rivals’ have triggered shutdowns and an exodus of foreign firms, challenging FBR’s rosy enforcement narrative. Without addressing these chokeholds, higher tax ratios risk strangling the golden goose of genuine expansion.
Enter the IMF’s EFF and the freshly inked $1.4 billion Resilience and Sustainability Facility (RSF), lauded by Binici as lifelines for climate-proofing finances. The program mandates a 3 percentage point tax-to-GDP hike, targeting untaxed realms like agriculture, real estate, and digital commerce, while pruning exemptions. Pakistan’s Q1 FY26 performance offers a glimmer: a 1.6 percent GDP fiscal surplus of Rs2.12 trillion, up 10 percent year-on-year, fueled by State Bank profits, a 30 percent petroleum levy boom, and provincial surpluses. Yet, this “success” is a double-edged sword. Non-tax revenues, dominated by the petroleum levy—now at Rs70 per liter on key fuels—disproportionately burden the poor, who spend a larger share on transport and heating. Development spending? Slashed to Rs40 billion from a budgeted Rs150 billion in the first quarter, starving infrastructure and human capital investments. Public Sector Development Programme (PSDP) outlays crawled to Rs76 billion in four months, a mere 7.6 percent of allocation, as IMF-aligned austerity prioritizes debt servicing over growth catalysts.
This contractionary zeal, while meeting IMF covenants, stifles the output surge needed for inclusive prosperity. Higher growth could naturally buoy the tax ratio, but only if it spawns jobs and curbs poverty—not if it’s inventory-fueled or smuggling-sustained. The elite, shielded by undertaxed sectors, must shoulder sacrifices: a trillion-rupee slash in current expenditures through subsidy rationalization and luxury curbs. Out-of-the-box reforms beckon—carbon taxes on polluters over blanket levies, incentives for green exports, and provincial tax devolution to hit agriculture’s blind spots.
As FY26 unfolds with a Rs17.6 trillion budget eyeing 4.2 percent growth, the litmus test is delivery. Will the tax net ensnare evaders without ensnaring the poor? Can surpluses seed schools and solar grids, not just sovereign bonds? Pakistan teeters on this precipice: embrace holistic reforms, and 15 percent becomes a launchpad for equity; cling to stopgaps, and statistics will continue their damning deceit. The proverb warns of manipulated metrics; now, it’s time for metrics that heal a fractured economy.