Pakistan enters FY26 with a fragile but promising macroeconomic outlook. Inflation, which soared to over 29 percent in FY24, has dropped below 5 percent as of mid-2025, offering some respite to households and restoring partial fiscal space. The government’s GDP growth target of 4.2 percent signals renewed ambition.

Pakistan’s tax-to-GDP ratio remains one of the lowest in the region, standing just below 9 percent.

The real test lies not in growth figures but in whether the country can meaningfully expand its revenue base. The target for tax collection in FY26 has been set at Rs 14.1 trillion, requiring an increase of over 16 percent from the previous fiscal year. This optimism rests on a combination of administrative improvements, withdrawal of exemptions, and the broadening of the tax base, particularly into politically sensitive areas like agriculture, services, and the informal sector.

To its credit, the government has shown intent by pushing reforms under IMF supervision. New budgetary measures now target previously untaxed or undertaxed sectors, real estate, digital freelancers, retailers, and the agricultural elite. Provincial authorities have been nudged to tax farm incomes, long treated as sacrosanct, and there are moves to harmonize GST across provinces.

Federal Excise Duties have been revised upward on cement, sugar, tobacco, and non-essential imports. While these measures are likely to generate immediate gains, their sustainability depends on deeper structural corrections and implementation across layers of governance.

Still, Pakistan’s tax-to-GDP ratio remains one of the lowest in the region, standing just below 9 percent. Over two-thirds of total revenue comes from indirect taxes, placing a disproportionate burden on lower-income groups. Out of a population of over 240 million, only about 6.5 million are registered tax filers. Widening this base requires more than policy.

Taxing politically influential groups… remains a formidable challenge.

It requires a functional state apparatus capable of identifying, assessing, and collecting revenue in a system plagued by administrative inertia, poor enforcement, and corruption. Moreover, the social contract between citizens and the state remains weak; taxpayers perceive little return on their contribution in the form of services, which undermines voluntary compliance.

There is also the matter of political will. Taxing politically influential groups, such as large landholders and traders, remains a formidable challenge. Previous attempts to enforce agricultural income tax have been either diluted or abandoned under political pressure.

Unless there is genuine alignment between political objectives and revenue goals, many of the proposed reforms risk becoming cosmetic. The same holds for provincial cooperation. The lack of coordination between federal and provincial tax authorities creates loopholes and inefficiencies that cost the exchequer billions annually.

On the technological front, there are signs of progress. The FBR is accelerating digital integration through e-filing, point-of-sale systems, and real-time data monitoring. These are essential steps toward reducing evasion and increasing efficiency, but their impact will be limited without institutional reform. Expanding capacity, ensuring audit integrity, and safeguarding data transparency must accompany technological upgrades if they are to translate into sustained revenue gains.

The reality is that expanding Pakistan’s revenue base is not just a fiscal imperative; it is a political and governance challenge.

The reality is that expanding Pakistan’s revenue base is not just a fiscal imperative; it is a political and governance challenge. FY26 may indeed deliver an uptick in collections if the current trajectory holds, but a structural shift will only come through credible, consistent execution over multiple budget cycles.

The reform signals are there, and the macro context is more favorable than it has been in recent years. Whether this translates into a broader and fairer revenue net, however, will depend on more than numbers. It will depend on the state’s ability to confront entrenched interests, modernize institutions, and restore taxpayer trust.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.