Khurram Schehzad, Advisor to the Finance Minister of Pakistan, has challenged claims that Pakistan’s provinces are outperforming the centre in tax collection, presenting Federal Board of Revenue (FBR) data that shows provincial revenues remain far below their potential, despite having large constitutionally assigned tax bases.
“There’s a claim circulating that provincial tax performance has been better than the federal, and that this should settle the debate on whether resource allocation needs revisiting,” said Schehzad, in a post on X Friday. “The factual details point to a different conclusion.”
According to FBR figures for FY25, shared by Schehzad, the federal government collected over Rs13 trillion in taxes and levies, equivalent to 11.3% of GDP. “Federal collections are on a trajectory to reach 15% of GDP by June 2028,” he said.
In contrast, combined provincial tax collections stood at just Rs979 billion, or 0.85% of GDP, well short of the roughly 3% contribution expected from provinces in comparable federal systems.
The advisor argued that the debate over resource allocation and fiscal federalism should be grounded in outcomes rather than perceptions. “The issue is not the size of the tax base, but the revenue yield from it,” said Schehzad.
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“For countries at Pakistan’s level of development, the benchmark is 18% tax-to-GDP, with 15% of GDP expected from federal taxes, and the rest from provinces/states,” he said. While federal collections are steadily closing this gap, provincial revenues would need to more than triple by FY28 to reach their expected share.
“Provincial governments have large constitutionally assigned tax handles, yet collections remain far below what the economic base suggests,” said Schehzad.
A breakdown of sector-wise data from FBR highlighted large disparities in collection efficiency. The services sector, which falls under provincial jurisdiction, has an estimated taxable base of Rs29 trillion, yet provinces collected only Rs650 billion, translating into a yield of just 2.2%.
By comparison, the federally administered goods sector, with a similar taxable base of around Rs30 trillion, generated Rs3.9 trillion, reflecting a 13% yield, said Schehzad.
The shortfall is even more pronounced in agricultural income tax, another provincial subject. Despite an estimated taxable base of Rs3.7 trillion, provinces collected only Rs8.4 billion, a yield of only 0.2%.
Property-related taxes — including stamp duties and urban immovable property tax — also remain significantly underutilised. Against an estimated real estate asset base of Rs21.7 trillion, provincial collections amounted to just Rs66 billion, or 0.3%.
“Federal collections are already at 11.3% of GDP and moving toward benchmark levels. Provincial collections, combined, remain at 0.85% of GDP, far below the 3% expectation, despite substantial tax bases in services, agriculture, and property sectors,” said Schehzad.
The advisor noted that provincial revenue potential remains largely untapped. “Progress demands a balanced reform agenda with stronger revenue efforts at every level.
“Federal and provincial governments are partners; closing provincial tax gaps, alongside federal reform, is key to better services, lower fiscal stress, and a fairer federation,” he said.
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