A new expert analysis exposes how FBR has become a bystander in its own revenue system
Key Takeaways:
- FBR is largely redundant: With automatic mechanisms doing nearly all the heavy lifting in tax collection, FBR’s own administrative contribution to revenue generation is negligible — raising serious questions about the institution’s purpose and cost.
- IMF deadlines are breeding coercion: Pressure to meet revenue targets pledged to the IMF has pushed tax authorities toward legally questionable and economically damaging recovery tactics rather than genuine structural reform.
- The informal economy keeps winning: As long as the tax burden falls disproportionately on documented, compliant businesses through advance deductions and withholding, undocumented businesses will continue to thrive outside the net.
Islamabad, Pakistan – For years, Pakistani governments have defended the Federal Board of Revenue’s swelling bureaucracy and ever-growing budget as necessary tools for plugging the country’s chronic tax gap. A rigorous new analysis turns that argument on its head.
In a detailed research piece titled “FBR’s Disastrous ‘Withholdingisation‘”, tax law experts Huzaima Bukhari, Dr. Ikramul Haq — Advocate Supreme Court and Visiting Senior Fellow at the Pakistan Institute of Development Economics (PIDE) — and Abdul Rauf Shakoori argue that FBR has not so much built a tax system as inherited an automatic deduction machine, one that runs largely without it. The three authors, drawing on FBR’s own Revenue Division Year Books covering FY2021 through FY2025, make a case that should trouble policymakers, IMF negotiators, and Pakistani taxpayers alike.
Running on Autopilot
The picture that emerges from five years of official data is one of an institution that has quietly become a spectator in its own domain. Banks deduct taxes at source. Importers pay up before their goods clear customs. Utility companies collect sales tax through electricity bills. By the time FBR’s field officers get involved, most of the money has already changed hands. The authors calculate that well over 96% of total federal tax revenue is generated through these automatic channels — leaving FBR’s own assessment and enforcement machinery responsible for a fraction so small it barely registers.
What makes this particularly striking, the analysts point out, is that the active sales tax filer count on FBR’s own rolls stood at just over 185,000 as of early April 2026 — even as more than six million businesses held commercial or industrial electricity connections and were therefore already paying sales tax passively through their utility bills. The contrast between these two figures speaks volumes about how little FBR has done to actually bring businesses into the formal tax net, as opposed to simply taxing those already in it through automatic means.
When the system automatically extracts from those who are already in the net, through advance tax, withholding, and import-stage levies, while making limited effort to bring new taxpayers into the fold, it creates a rational incentive for businesses to stay informal.
The authors also note that FBR’s Annual Performance Report for FY2024-25 has still not been released — a lapse they describe as surprising given how many months have passed since the close of that fiscal year.
Coercion in Place of Reform
Perhaps the most politically sensitive part of the analysis concerns how Pakistan has managed its revenue commitments to the International Monetary Fund. Rather than addressing the structural weaknesses that limit voluntary compliance and genuine tax base expansion, the government has increasingly leaned on aggressive recovery drives to hit numbers it has committed to in Washington. The authors highlight a recent prior action under Pakistan’s IMF programme that required the collection of Rs. 322 billion from ongoing litigation, primarily involving the controversial super tax — a measure whose retrospective application had previously been struck down by higher courts as unconstitutional, before the Federal Constitutional Court issued a short order in its favour in January 2026. Notably, that court’s detailed written reasoning has still not been made public more than two months later, even as hundreds of review petitions pile up against it.
What makes this particularly striking, the analysts point out, is that the active sales tax filer count on FBR’s own rolls stood at just over 185,000 as of early April 2026
Bukhari, Haq, and Shakoori raise a pointed legal question: on what basis can late payment surcharges be imposed for periods when the underlying tax demand had been declared unlawful by the courts? The answer, they suggest, is less about legal propriety and more about administrative expediency — getting the numbers right in time for the next IMF tranche, which they estimate could unlock roughly $4.5 billion in combined disbursements under the Extended Fund Facility and the Resilience and Sustainability Facility.
Businesses across Pakistan, meanwhile, are reportedly experiencing the consequences firsthand — in the form of coercive recovery notices, threatened asset attachments, and refunds that are delayed indefinitely while advance collections are demanded immediately. The practical effect, the authors warn, is to squeeze the liquidity out of compliant, documented businesses while leaving the informal sector — which contributes little to withholding-based revenue — largely untouched and arguably better off.
A System That Punishes Compliance
At its core, the analysis by Bukhari, Haq, and Shakoori is a warning about the perverse incentives baked into Pakistan’s current approach to taxation. When the system automatically extracts from those who are already in the net, through advance tax, withholding, and import-stage levies, while making limited effort to bring new taxpayers into the fold, it creates a rational incentive for businesses to stay informal. Every new compliance burden on documented enterprises widens the competitive gap with their undocumented counterparts.
The three experts are clear that this is not primarily a problem of how much tax Pakistan collects, but of how it collects it. The prescription they offer is straightforward in principle, if politically difficult in practice: broaden the base, lower the rates, fix the refund mechanism, and replace withholding-heavy extraction with a system that actually rewards voluntary compliance and documentation. Without this reset, they conclude, Pakistan will keep generating revenue numbers that satisfy international lenders on paper while quietly hollowing out the investment climate and economic growth that those same lenders say they want to see.
