In the complex labyrinth of Pakistan’s fiscal landscape, the Federal Board of Revenue (FBR) continues to grapple with achieving its ambitious targets. Despite some notable successes in tax collection, the burden persistently falls on the shoulders of ordinary citizens, while the affluent and influential sectors remain shielded. This enduring inequity underscores the broader challenges facing Pakistan’s economic framework.

The Federal Board of Revenue (FBR) has surpassed its May target by Rs15.21 billion, propelled by an augmented collection of income tax and import duties, as per provisional data. The FBR had previously curtailed the tax collection target by nearly Rs66 billion for May and Rs8 billion for April. These adjustments were made to accommodate the tax amounts from last year’s fiscal measures that were impeded by judicial proceedings in FY24. Revenue collection for May amounted to Rs760.21 billion, outstripping the projected target of Rs745 billion. This marks a 32.8% increase compared to Rs572.29 billion in the corresponding month of the previous year. These figures are expected to further improve following book adjustments.

In the first 11 months (July-May) of FY24, the FBR amassed Rs8.122 trillion against a target of Rs8.162 trillion. This reflects a 30.8% increase compared to the Rs6.208 trillion collected during the same period last year.

Despite this progress, revenue collection fell short of budgetary targets in February, January, April, and May. An official statement from the FBR emphasized the government’s policy of mobilizing additional resources for domestic taxes. The team has exerted significant effort to meet the assigned revenue targets.

The June target was initially set at Rs1.178 trillion but has been revised upward to account for a Rs75 billion backlog from previous months. The government disbursed Rs438.110 billion in refunds and rebates to taxpayers during the 11 months of FY24, compared to Rs315.223 billion in the same period last year, marking a 38.98% increase.

A breakdown by tax type reveals that income tax collection surged by 40.6% to Rs3.857 trillion in 11MFY24, up from Rs2.743 trillion in the same period last year. In May alone, income tax collections rose by 48%. Sales tax collection reached Rs2.767 trillion in 11MFY24, compared to Rs2.314 trillion in the corresponding period last year, reflecting a growth of 19.6%.

In May, sales tax collection increased by 20%, falling short of projected targets despite unprecedented inflation. Federal excise duty collection rose by 54% to Rs503.034 billion in 11MFY24, compared to Rs326.496 billion in the same period last year. The previous year, the government introduced new FEDs on various products, contributing to the increased collection.

The tax-to-GDP ratio for the last fiscal year remained at nine percent, and predictably, the government has remained silent on the underlying reasons for this persistently low figure, despite the country being the fifth most populous in the world. This ongoing issue stems from successive governments, including the current administration, succumbing to political pressure and leaving major sectors—agriculture, wholesale, retail, and real estate—either untaxed or under-taxed. Consequently, there is little hope that the current fiscal year’s outcome will be any better than the last.

The new finance minister, with a background in banking, pledged to finally impose taxes on these significant sectors, much like his predecessors. However, when the budget was announced, he either did not or could not follow through on this promise. His commitment was logical, particularly as the country was on the brink of another critical Extended Fund Facility (EFF) with the International Monetary Fund (IMF). Taxing these substantial yet untaxed sources would have created the fiscal space needed to meet the stringent “upfront conditions.”

But when it came to the crunch, the onerous tax burden did not fall on these affluent cartels but on the everyday, industrious citizens who are already shouldering the debt load, as they are compelled to pay taxes despite their real incomes failing to keep pace with historic high inflation and unemployment.

It’s often said that the most perilous deceptions are the ones we weave for ourselves. Over the years, our leaders seem to have truly believed that shielding the wealthy, influential, and powerful from the tax net while extracting more and more from ordinary, law-abiding citizens is the proper way to govern the country.

Even now, with the economy teetering on the edge of collapse, the specially protected sectors are permitted to employ pressure tactics, outright blackmail, or more frequently, their government connections to dodge their fair share of taxes. For instance, agriculture still contributes less than one percent to provincial revenue figures. In such a scenario, one would expect a committed central government to levy the agricultural tax at the same rates ordinary citizens pay and then deduct this amount from annual NFC transfers.

However, since the central government is also populated by the same kind of feudal lords and industrial magnates, it’s unsurprising that no such astute idea ever sees the light of day. And so, we continue to circle the same drain.

The significant issue now is that the well is running dry. Most ordinary Pakistanis have seen their real incomes plummet due to the economic downturn of recent years, particularly unprecedented inflation and unemployment.

Given that they’re earning considerably less in real terms yet are required to pay far more in taxes—just so the government can satisfy the Fund’s conditions and avert default—it’s only a matter of time before we reach a critical tipping point. For a while, however, it genuinely seemed that this time would be different. This government assumed office after a highly contentious election but promised it understood the gravity of the situation and was prepared to do whatever was necessary to rectify the economy.

And it really seemed that the new finance minister was serious about tax reforms; that he would bring the no-nonsense, analytical rigor of the banking sector to the finance ministry and set the budget right. However, it was not to be. It’s not merely that we’re incapable of broadening our tax base and increasing tax revenue. It’s that the state lacks the will to do so.

Ultimately, the dilemma of Pakistan’s tax system is not just a matter of missed targets and unmet promises. It reflects a deeper issue of systemic reluctance to enforce equitable tax policies. As the government struggles to broaden its tax base and meet international financial obligations, the common citizens continue to bear the brunt of an unjust system. Without genuine reform and a commitment to fair taxation, Pakistan’s fiscal stability will remain elusive, and its economic future uncertain.