ISLAMABAD – Pakistan has posted its strongest revenue-to-GDP ratio in over two decades, reaching 15.7% in the fiscal year 2025, driven not by an overhaul of the tax system, but by an extraordinary surge in non-tax revenues.
According to the Ministry of Finance, this marks a 3.2 percentage point increase compared to the previous fiscal year, the biggest one-year gain since 2020 — a time when IMF-imposed fiscal discipline last triggered a similar spike.
Non-Tax Earnings Do the Heavy Lifting
While tax revenues did grow — by 26% year-on-year — it was non-tax income that played the starring role, rising a staggering 68% to Rs5.27 trillion. That figure alone represented 4.6% of GDP, the highest share since 2009.
The main drivers? Profits handed over by the State Bank of Pakistan and increased receipts from the Petroleum Development Levy (PDL), which ticked up from Rs1.16 trillion to Rs1.22 trillion. There was also an unexpected Rs108 billion bump in markups from public sector entities, totaling Rs258 billion.
This revenue influx helped push Pakistan’s fiscal deficit down to 5.4% of GDP — the narrowest in nine years, compared to 6.8% the year before.
Record Shortfall in FBR Collections
But beneath the surface, cracks remain.
Despite the strong overall revenue numbers, the Federal Board of Revenue (FBR) fell short of its own revised collection goals — by a massive Rs1.23 trillion. That’s the largest tax shortfall in Pakistan’s history, raising fresh questions about the FBR’s ability to meet future IMF benchmarks and the sustainability of relying on non-tax streams.
Where the Money Went
Pakistan’s total federal spending hit Rs24.16 trillion for FY25, with debt servicing eating up the lion’s share. A whopping Rs8.89 trillion went toward debt repayments — Rs7.98 trillion of which covered domestic debt alone.
Meanwhile, development spending, always under pressure in times of austerity, totaled Rs2.97 trillion. This included Rs786 billion for federal Public Sector Development Programme (PSDP) initiatives and Rs2.12 trillion channeled through the provinces.
One notable footnote in the fiscal report: statistical discrepancies stood at a negative Rs329 billion — a technical term pointing to mismatches between federal and provincial accounting.
Analysis: A Revenue Win With Long-Term Risks
Pakistan’s revenue uptick is, on paper, a much-needed fiscal win, especially under the lens of IMF monitoring. But the overreliance on non-tax channels — particularly one-off inflows like SBP profits and levies — signals that deeper, structural tax reform remains elusive.
Until tax collection becomes more robust and broad-based, Pakistan’s budget stability may remain vulnerable to external shocks and political shifts.
