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 have yielded some gains; the larger question remains whether these measures can bridge the revenue gap without revisiting structural imbalances. Answering this question requires political will rather than wholly blaming the implementation organisation. The retail sector, despite its 17.8 per cent share in GDP, remains largely outside the tax net due to political considerations. At the same time, the petroleum sector, valued at Rs6-7 trillion, also lies outside the tax ambit, even as the federal government aims to collect nearly Rs1.5tr through the petroleum development levy (PDL) in FY26. For FY27, the target for PDL is projected at Rs1.7tr, alongside expectations that provinces will give up between Rs1.3tr and Rs1.7tr to cover FBR shortfalls. Without entering into technicalities, this effectively means that the federal government will withhold approximately Rs3tr from the provinces over and above the National Finance Commission award, without formally amending the accord. Retail and petroleum sectors remain largely untaxed; fiscal targets are increasingly met through levies and provincial surpluses This raises a fundamental question: is this a sustainable solution to the revenue collection problem, or merely a short-term measure to meet debt-servicing and defence spending requirements under the International Monetary Fund (IMF) programme? Dr Ali Hasanain, associate professor of economics at Lums, said successive governments, this one included, have repeatedly announced retail registration sche