Pakistan’s Tax Outlook: Limited Relief Expected

Meaningful relief for compliant income tax payers, salaried individuals and teh corporate sector – who together contribute roughly half of Pakistan’s revenues – appears unlikely.Most experts expect only a modest downward adjustment in the year ahead.

To avoid a revenue shortfall and keep the International monetary Fund (IMF) program on track, analysts believe the government may again fall back on lucrative indirect measures, most notably a higher petroleum levy.

Those who trust the Federal Board of Revenue’s (FBR) reform intent and believe the government is committed to improving fairness by targeting under-taxed sectors and identified tax evaders also acknowledge that even the best efforts will take time to bear fruit. As a result,the tax-to-GDP ratio is likely to remain flat in the best-case scenario,and could even decline if the FBR becomes complacent or the government fails to sustain its reform commitments or control expenditure.

In 2026, to contain public discontent over shrinking jobs and weak investment, the government may be compelled to strike a finer balance between growth needs and stabilisation demands. Beyond resistance from powerful interest groups, it will also test the government’s economic team’s ability to negotiate effectively with the IMF.

A recent media report indicates that the IMF, which is closely monitoring Pakistan’s economic trajectory, also expects tax collection to remain broadly stagnant in CY26.

There appears to be little room for tax-rate cuts next year, with minor adjustments expected at best

From 8.9 per cent the previous year, the tax-to-GDP ratio rose to 10.3pc in FY25 and could inch up about eight percentage points to 11.1pc in FY26 due to higher taxation measures in the current fiscal year ending in June 2026. Though, if the next budget includes expected reductions in direct tax rates, revenue collection may weaken in the second half of 2026, stalling further betterment and keeping the tax ratio broadly unchanged in FY27.

FBR revenues increased…