Federal bucks ahead, provinces lag behind in Pakistan’s tax race

Pakistan’s tax performance highlights a significant gap between federal and provincial revenue collections.

While the federal government continues to show steady growth, provincial tax efforts remain far below potential.

In the fiscal year 2025, the federal government collected over Rs13 trillion in taxes and levies, equivalent to 11.3% of GDP, which was Rs114.7 trillion.

For countries at Pakistan’s development level, a benchmark tax-to-GDP ratio of 18% is considered healthy, with 15% expected from federal collections.

The federal tax system is on track to reach 15% of GDP by June 2028.

By comparison, provincial governments combined collected Rs979 billion, or 0.85% of GDP, substantially below the 3% target.

According to Khurram Schehzad on his X platform, the focus should be on revenue yield from the existing taxable base, rather than just nominal collection figures.

The gap in revenue performance is evident across multiple sectors.

The services sector, which falls under provincial taxation, has an estimated taxable base of Rs29tr, yet provincial collections amounted to Rs650bn, or 2.2%.

Federal collections on goods, by contrast, reached Rs3.9tr, representing 13% of the estimated base.

Agricultural income tax, another provincial subject, yielded just 0.2% of its Rs3.7tr base.

Property taxes, including stamp duties and urban immovable property tax, accounted for 0.3% of a real estate asset base of Rs21.7 tr, lower than several regional peers.

Federal tax yields exceed 17% of their estimated base, while provincial yields remain far below potential.

The  provincial tax gaps alongside federal reforms could improve public services, reduce fiscal stress, and support a more balanced fiscal federalism.

The discussion on resource allocation and fiscal federalism, therefore, is increasingly seen as one that should be grounded in measurable revenue outcomes rather than perceptions. Strengthening tax performance at both federal and provincial levels is central to tapping Pakistan’s economic potential.