The Federal Board of Revenue (FBR) expects direct taxes to account for around 50% of Pakistan’s total tax collection during the 2026-27 fiscal year, reflecting a continued shift toward a more progressive and sustainable taxation system.
According to the FBR’s latest Revenue Forecasting Report, direct taxes are projected to maintain the largest share of total tax revenue, underscoring the impact of ongoing tax reforms aimed at broadening the tax base and improving compliance.
Shift toward a fairer tax system
The report states that the increasing contribution of direct taxes represents a move away from heavy reliance on indirect taxation, which is primarily collected through consumer spending and international trade.
The FBR noted that direct taxes—levied on income and profits—are generally considered more equitable because they are based on a taxpayer’s earning capacity rather than consumption.
Officials believe this shift will help create a fairer tax structure while reducing the burden that indirect taxes often place on lower-income households.
Stable revenue through reforms
According to the report, a greater share of direct taxes is expected to provide a more stable and predictable source of government revenue over the medium term.
The FBR attributed the anticipated growth to several ongoing initiatives, including:
- Expanded tax documentation
- Digitalization of tax administration
- Improved taxpayer compliance
- Broader revenue collection reforms
These measures are designed to enhance efficiency, increase transparency, and reduce tax evasion.
Focus on revenue quality
The FBR said the projected rise in direct tax collection reflects not only higher revenue expectations but also an improvement in the overall quality of Pakistan’s revenue mobilization.
The report added that strengthening direct taxation would improve fiscal sustainability, reduce dependence on consumption-based taxes, and support the government’s broader objective of building a more resilient and balanced taxation system.
The revenue forecast aligns with the government’s ongoing efforts to modernize Pakistan’s tax administration and strengthen public finances through structural reforms.
