Government mulls reducing Federal Board of Revenue's tax objective, floating a proposal for floods tax
The Pakistani government is navigating a complex economic landscape, with several key initiatives underway to address revenue shortfalls and stimulate growth. Amidst these efforts, the ongoing flood crisis has added another layer of complexity.
The Federal Bureau of Revenue (FBR) is expected to revise its tax collection target for the current fiscal year, with a potential reduction from Rs14.13 trillion to between Rs13.7 trillion and Rs13.9 trillion. This adjustment comes as independent tax experts express concerns that revenue losses might reach up to Rs500 billion for the fiscal year. However, FBR high-ups are optimistic that revenue losses will start recovering in the second half of the year.
In an attempt to mitigate revenue losses, the government is pursuing a series of privatisation initiatives. The privatisation of three batch distribution companies (Iesco, Fesco, Gepco) is targeted for December 2025, with a financial advisor already hired for the process. The government aims to initiate the process for hiring a financial advisor for the privatisation of Batch II Discos (Hesco, Sepco, Pesco) by the end of April 2025.
The government is also focusing on the privatisation of commercial state-owned enterprises (SOEs), with the highest priority on profitable commercial SOEs. Significant progress is expected in this regard, with the privatisation of the First Women's Bank and HBFC targeted for May 2025. The government is also targeting the privatisation of a third bank, ZTBL, by the end of this year.
The energy sector is not left behind in the privatisation drive. The government wants to move towards Genco privatisation, with bidding for Nandipur targeted for January 2026. The government is also committed to privatising inefficient public generation companies and shifting captive power to the electricity grid. The restructuring of the National Transmission Dispatch Company is also part of the plan to create a more competitive electricity market.
However, the government has missed the deadline for privatising the PIA transaction, which was set for August 2025. The transaction structure for the Roosevelt Hotel is still underway.
The flood crisis has taken a toll on the country's economy, with initial estimates suggesting that major crops such as rice, sugarcane, and cotton may face losses of 15%, 5.7%, and 10%, respectively. The livestock sector has also suffered losses. To fund rehabilitation and reconstruction efforts, a flood levy is being proposed, which is expected to be imposed on high-net-worth sectors and individuals.
Despite the challenges, the government remains committed to ensuring that the implementation of reforms will bring the flow of any new Circular Debt (CD) to zero by FY31. The CPI-based inflation is expected to increase from the 5-7% range to 8%.
In conclusion, the Pakistani government is tackling a multifaceted economic situation, with a focus on privatisation, energy sector reforms, and flood recovery efforts. The government's efforts aim to stimulate growth, reduce revenue losses, and position the economy for a more competitive and sustainable future.
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