Provincial revenue potential largely untapped: Shehzad

ISLAMABAD: Pakistan’ provincial revenue potential remains largely untapped, and claims that provinces have outperformed the federal government on tax collection do not stand up to a factual review, said Khurram Shehzad, Advisor to the Finance Minister.

“The debate on fiscal federalism must be anchored in measured outcomes, not perceptions,” Shehzad said, pointing to wide disparities between federal and provincial tax effort despite provinces holding major constitutionally assigned tax bases.

He shared details with media noting that in fiscal year 2025 the federal government collected over Rs 13 trillion, equivalent to 11.3 percent of GDP, placing Pakistan on a trajectory to reach the 15 percent federal tax-to-GDP benchmark by June 2028. For countries at Pakistan’s level of development, total tax revenue of around 18 percent of GDP is considered normal, with the balance expected from provincial and state governments.

By contrast, all provinces combined collected just Rs 979 billion in fiscal year 2025, or 0.85 percent of GDP. “Provinces are expected to contribute around 3 percent of GDP. To get there by 2028, collections will need to more than triple,” Shehzad said.

According to him, the core problem is not the absence of a tax base, but weak revenue yield from existing bases.

On sales tax, Shehzad highlighted that services — a provincial subject — have an estimated taxable base of Rs 29 trillion, yet provinces collected only Rs 650 billion, a yield of 2.2 percent. In contrast, sales tax on goods — a federal subject — generated Rs 3.9 trillion from a Rs 30 trillion base, a yield of around 13 percent.

“This gap alone shows the difference in collection efficiency,” he said.

The picture is even starker in agricultural income tax, also a provincial responsibility. Despite an estimated taxable base of Rs 3.7 trillion, provinces collected just Rs 8.4 billion, a yield of 0.2 percent.

Copyright Business Recorder, 2026