Weak enforcement allows illicit trade, causing revenue losses

2026-02-04 - 14:26

The Federal Board of Revenue (FBR) continued to struggle to achieve its revenue targets, not due to economic weakness but the absence of effective, targeted enforcement, particularly at the provincial level. The expert argued that unless provincial authorities ensure enforcement at the retail level, illicit trade will continue to undermine federal revenues and distort the economy. During the first half of the current fiscal year, the FBR recorded a revenue shortfall of Rs330 billion against its target. This gap reflects the scale of undocumented economic activity rather than a slowdown in business. Sectors such as real estate, pharmaceuticals, tea, tobacco, and tyres continue to operate largely outside the documented framework, shifting the tax burden onto a narrow base of compliant taxpayers. The expert said that provincial-level enforcement has a direct macroeconomic impact on federal revenue performance. When enforcement is carried out effectively at this level, its effects extend nationwide across supply chains. However, despite having the mandate, provinces have struggled to implement sustained and coordinated enforcement, weakening the overall impact of anti-illicit trade efforts. As a result, enforcement remains fragmented and is often confined to selective retail checks. Such limited actions deliver little meaningful impact. Without comprehensive, country-wide targeted enforcement at all levels, including production, distribution, and retail, expectations of significant revenue gains remain unrealistic. Analyst Osama Siddiqui said the government can still achieve its tax targets if it prioritises targeted, nationwide enforcement and documentation. He suggested plugging tax leakages and enforcing existing laws through targeted crackdowns rather than burdening the already taxed sector. He stated that curbing smuggling and documenting untaxed sectors could substantially improve revenue collection. He stated that the weak implementation of the Track and Trace System across industries is a clear indication of limited institutional resolve to tackle illicit trade. He stated that the sustainable fiscal future depends on shifting policy away from repeatedly taxing those already compliant toward capturing revenue from the untaxed economy through consistent, coordinated, and targeted enforcement at both provincial and national levels. Without serious enforcement beyond isolated retail measures, revenue gaps will persist, keeping the economy under continued financial strain and delaying recovery. FBR misses tax collection target for July-January FY2026