The International Monetary Fund (IMF) is expected to revise down Pakistan’s revenue collection target for the current fiscal year, reducing it by Rs. 490 billion from the original Rs. 12,970 billion to Rs. 12,480 billion.
Potential Fiscal Adjustments and Government Response
The IMF is likely to recommend that the Revenue Division lower its revenue target below Rs. 12.5 trillion. To compensate for the shortfall, the finance ministry will be advised to either:
- Cut government expenditures by Rs. 500 billion, or
- Implement additional revenue measures, such as a mini-budget to increase tax collection.
The government will decide on its course of action during policy-level talks next week.
Tobacco Industry’s Appeal for Lower Taxes
During the IMF review meeting on Wednesday, representatives from the tobacco industry urged the lender to:
- Reduce the Federal Excise Duty (FED) on cigarettes by 25%, and
- Introduce a third tax tier to stabilize the market.
They argued that excessive tax hikes have reduced legal cigarette sales and fueled the illicit trade, negatively impacting tax revenue.
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Declining Tobacco Tax Revenues
Tax collections from the tobacco sector increased from Rs. 148 billion in 2021-22 to Rs. 277 billion in 2023-24. However, they are now projected to:
- Drop to Rs. 243 billion by June 2025, and
- Further decline to Rs. 223 billion by 2026-27.
FBR and IMF Disagreements Over Revenue Estimates
FBR officials have cautioned that accepting the tobacco industry’s proposal could lead to a Rs. 50 billion loss in revenue. They attribute the declining tax-paying cigarette sales to:
- Increased smuggling, and
- Tax evasion, which they estimate causes an annual revenue loss of Rs. 300 billion ($1.1 billion).
Despite FBR’s confidence in meeting the original revenue target through pending tax case resolutions, the IMF remains skeptical, particularly regarding the final quarter (April-June 2025).
