ISLAMABAD: Claims made at the Pakistan Governance Forum 2026 that Federal Board of Revenue (FBR) collects only Rs1.6 trillion in sales tax on goods against a potential of Rs11 trillion have been strongly contested by government sources. They describe the figure as materially inaccurate and any policy conclusions drawn from it as fundamentally flawed.
According to officials familiar with the matter, federal sales tax on goods for fiscal year 2024-25 stands at Rs3.9 trillion. When Petroleum Development Levy — imposed explicitly in lieu of sales tax on petroleum products — is included, total rises to Rs5.1 trillion.
Sources argue Rs1.6 trillion baseline cited at the forum underestimates actual collection by more than three times. “Any leakage analysis that begins from Rs1.6 trillion cannot form basis of serious policy conclusions,” a source said, adding the correct collection figure must include levy before calculating any efficiency gap.
Officials also challenged Rs64 trillion taxable base presented by provincial representatives. Pakistan’s nominal GDP of roughly Rs114 trillion, they argued, cannot be treated as GST base.
After excluding agriculture — which accounts for 23.6 percent of GDP and falls under provincial jurisdiction — along with zero-rated exports, informal sector activity and other constitutionally assigned provincial domains representing approximately 40 percent of GDP, the effective federal taxable base narrows to around Rs40 trillion.
At an 18pc tax rate applied to that adjusted base, theoretical maximum revenue would be Rs7.3 trillion, not Rs11 trillion. On this basis, FBR’s Rs5.1 trillion collection represents nearly 70pc realisation of theoretical ceiling, a performance sources say compares favorably with other emerging economies.
While acknowledging a persistent gap between potential and actual collection, officials attributed it primarily to structural features of economy rather than administrative weakness. Of roughly five million retailers nationwide, only between 34,000 and 50,000 qualify as Tier-1 operators subject to full documentation requirements.
The remainder is taxed through simplified mechanisms or electricity-linked proxies — an approach described as reflecting literacy levels, compliance capacity and political economy realities. “Aggressive enforcement across informal retail sector would be inflationary and socially disruptive,” one source noted. “These structural constraints would confront any administration, federal or provincial.” Similar limitations exist in parts of industry, mining, small-scale manufacturing, and construction, where informality, contractual arrangements or shared jurisdiction complicate taxation. Agriculture, nearly one-quarter of national economy, is described as largely subsistence-based, with only the top income decile earning above exemption thresholds. All the four provinces together collect approximately Rs650 billion in sales tax on services, despite a taxable base conservatively estimated at over Rs40 trillion. This implies an effective tax rate of roughly 1.6pc, compared to statutory rates ranging from 14 to 16pc.
Provincial performance in other tax domains also remains weak. Property taxes across the provinces yield effective rates between 0.2 and 0.4pc, while agricultural income tax from a Rs27 trillion sector generates less than Rs10 billion nationwide. “Before advancing claims about what provinces could generate from the far more complex goods sector, there should be a frank reckoning with performance in domains provinces already control,” a source said.
Officials further warned splitting GST on goods among four provincial administrations would raise compliance costs for businesses, create inter-provincial tax arbitrage and replicate existing administrative gaps on a larger scale.
Pakistan was described as nearly unique among comparable federal systems in operating a consumption tax divided between federal and provincial authorities. The experience of India was cited as instructive: its pre-2017 fragmented VAT system was replaced due to high compliance costs, cascading taxation and inter-state arbitrage that hindered economic formalisation and growth.Sources argued consolidating GST collection under a single federal authority, while distributing revenues to provinces through a transparent formula, would reduce compliance burdens, eliminate jurisdictional arbitrage and enhance overall revenue performance.
“The argument for provincial revenue autonomy and the argument for administrative consolidation are not mutually exclusive,” a source said. “Provinces can retain their full constitutional revenue shares, while collection machinery is unified. What cannot be justified — on either efficiency or equity grounds — is maintaining a fragmented system that costs national economy more than it protects any province’s fiscal interests.”
In defending the federal tax administration more broadly, officials noted FBR achieved a tax-to-GDP ratio of 10.33 percent in FY2024-25 — highest in Pakistan’s history — marking a 1.41 percentage point increase over the previous year and largest single-year gain in more than two decades. Sales tax on services in Islamabad Capital Territory increased by 628pc between 2017 and 2025, compared to 255pc growth across four provinces during the same period. Officials said this comparison highlights relative efficiency of federal administration within the same tax domain.
