In almost every country in the world, taxes are the major source of revenue for the governments to balance their budgets. In some countries, however, direct taxes, like income tax, are leading sources of tax revenue, while in many others, indirect taxes such as sales tax or value-added tax (VAT) are yielding large amounts of tax revenue. Taxes in Pakistan are collected by the Federal Board of Revenue (FBR) and Provincial Revenue Authorities (PRA).
Tax Collection by FBR
In Pakistan, the FBR is the premier organization for the collection of federal taxes, including income tax, sales tax, customs duty and federal excise duty. The FBR collected tax revenue of approximately Rs11.735 trillion (around $76.6 billion) during the fiscal year 2024-25, with a significant growth of about 26%, compared to the previous year, making it the highest net addition in a single year for Pakistan's tax revenue. The tax collection target set for the fiscal year 2025-26 is Rs14,131 billion (approximately $49.46 billion), aiming to raise the tax-to-GDP ratio to about 14%.
Income Tax
During the fiscal year 2024-25, the collection of income tax reached approximately Rs5.79 trillion with a surge of 37% year-on-year growth from registered taxpayers, indicating improved compliance. Income tax is collected through amendment of assessments by creating tax demand. There was a 110% increase in tax collection through demand, which is evidence of enhanced enforcement efforts by the tax authorities. Besides, the taxpayers made payments with returns and in the form of advance under section 147 of the Income Tax Ordinance, 2001. Tax collection through advance tax and payments with returns increased 37% of total income tax collection during 2024-25. The major contributor in overall income tax collection is the withholding tax regime. Withholding tax contributed around Rs2.9 trillion to the overall tax revenue, representing a large share of FBR's collections given the total tax revenue was around Rs11.7 trillion. The regime includes tax deductions on various payments, such as salaries, dividends, profits on debt, imports, contracts and services, etc.
Sales Tax
The sales tax contributed around one-third of the total federal tax revenue. In 2024-25, sales tax collection reached approximately Rs3.9 trillion, which is Rs814.5 billion higher than the previous fiscal year and 26.4% year-on-year growth. Domestic sales tax and sales tax collected from imports are two components of overall sales tax collection. Domestic sales tax collection increased by 32.4% to Rs1.62 trillion, driven by significant increases in sectors like electrical energy, POL products and automobiles, notably a 159% rise in motor car sales tax. Sales tax collection on imports increased by 22.4%. Overall, growth in sales tax collection was supported by improved compliance, enforcement and sector-specific performance. The sales tax collection target in 2025-26 is set at approximately Rs4.753 trillion, with a significant increase from the revised sales tax collection target of Rs3.984 trillion in 2024-25.
Customs Duty
During 2024-25, the FBR collected approximately Rs1.284 trillion in customs duties, with a 16.4% increase compared to the collection of Rs1.104 trillion in 2023-24. This collection contributes to about 10.9% of the FBR’s total revenue during 2024-25. The petroleum, oil, and lubricants (POL) sector was the largest contributor with a 22.7% contribution. The vehicle sector was the second-largest contributor with a 13.4% share and it experienced a notable 41% increase in customs duty collection. The overall increase in customs duty revenue reflects improved trade activity and higher import valuations. The customs duty target in 2025-26 is set at approximately Rs1.47 trillion, which is aligned with the government's broader National Tariff Policy 2025-30 of rationalizing and reducing tariff rates to promote export-led growth and economic competitiveness.
Federal Excise Duty
In 2024-25, the FBR collected approximately Rs. 888 billion in FED, which is around 6% of the total federal tax revenue, with 32.7% year-on-year growth, driven by policy measures and improved enforcement. This steady growth is driven by excise on goods such as beverages, tobacco products and petroleum-related items. FED collection includes taxes on both imported and locally produced goods, with specific rates applied to items like aerated waters, cigarettes and other excisable goods. The government has also increased excise rates on several products to enhance revenue mobilization without significantly disrupting industrial production. The FED target in 2025-26 is estimated at approximately Rs1.588 trillion, with a significant increase over the collection in 2024-25.
Other Taxes
Apart from the major tax heads like income tax, sales tax, customs duty, withholding tax and federal excise duty, the FBR also collects several other taxes and levies, including Capital Value Tax (CVT) on transfer of immovable property, wealth-related levies such as Wealth Tax and Workers Welfare Fund (WWF) contributions, including Workers' Welfare Profit Participation Fund (WPPF), tax on dividend income and capital gains, services tax collected by provinces as part of the sales tax on services, and indirect taxes like regulatory duties, additional customs duties and sector-specific cess or levies. These additional tax types help broaden the tax base and diversify revenue sources, supporting the overall goal of increasing the tax-to-GDP ratio and improving fiscal sustainability.
Tax Collection by Provinces
In Punjab, Sindh, Khyber Pakhtunkhwa (KP) and Balochistan, provincial revenue authorities are collecting tax revenue.
The Punjab Revenue Authority (PRA) collected a total of approximately Rs240 billion in tax revenue from July 2024 to May 2025, with a 16% year-on-year growth compared to the same period in the previous fiscal year. Major tax heads include Punjab sales tax on services, Punjab Infrastructure Development Cess and Punjab Workers Welfare Fund.
The Sindh Revenue Board (SRB) collects provincial sales tax on services and other taxes. SRB collected Rs306.6 billion in tax revenue in 2024-25, marking a 29.5% increase over the previous year's collection of Rs236.8 billion. This growth is attributed to strong enforcement, improved compliance, political support, and taxpayer cooperation. Sindh emerged as the top province in sales tax on services collection, contributing 46.37% of the total provincial sales tax revenue in Pakistan.
The Khyber Pakhtunkhwa Revenue Authority (KPRA) is the primary tax collection agency for Khyber Pakhtunkhwa province, established under the Khyber Pakhtunkhwa Finance Act, 2013. Its mandate includes administering and collecting sales tax on services and infrastructure development cess (IDC). KPRA surpassed its 2024-25 target of Rs47 billion by collecting Rs51.56 billion.
The Balochistan Revenue Authority (BRA) is the autonomous body responsible for optimising revenue collection and promoting tax compliance in Balochistan province. It administers provincial taxes, including sales tax on services, excise duties, property taxes, and various other local levies. BRA collected over Rs27 billion in tax revenue during 2023-24, accounting for approximately 89% of the total revenue collected in Balochistan for that year.
The writer studied Taxation Policy & Management at Keio University, Japan, and is serving as Additional Commissioner (Inland Revenue), Corporate Tax Office, Lahore.
