Squeezing tax from easy targets
ISLAMABAD: The federal government’s demand that provinces share the burden of the Federal Board of Revenue (FBR) collection shortfalls underscores an unsustainable fiscal strategy. The honest answer is that it is mostly political economy, not administrative incapacity, analysts say. There are some structural issues as well, but political economy remains at the heart of the problem. The Pakistan Economic Survey FY26 lists reforms ranging from digitalisation to enforcement that
Pakistan's federal government is asking provinces to help cover shortfalls in tax collection by the Federal Board of Revenue (FBR). Analysts suggest this reflects a political economy issue rather than just administrative shortcomings. Key sectors like retail, despite contributing significantly to the GDP, and the large petroleum industry remain largely outside the tax net due to political considerations.
Instead of broadening the tax base, the government appears to be relying on indirect taxes and levies, and potentially withholding funds from provinces beyond the National Finance Commission award. This strategy raises concerns about its long-term sustainability, especially in meeting IMF program requirements for debt servicing and defense spending.
This approach raises questions about the sustainability of Pakistan's fiscal strategy and highlights the challenges of tax reform when political interests conflict with revenue generation.
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