ISLAMABAD — The International Monetary Fund (IMF) has formally submitted its Governance and Corruption Diagnostic Assessment (GCDA) report to Pakistan’s Finance Division, warning of serious integrity risks within the Federal Board of Revenue (FBR) and recommending urgent structural reforms to strengthen governance and fiscal credibility.
Among its key recommendations, the IMF has urged Pakistan to curtail broad and loosely regulated tax exemptions and relief regimes. It emphasized that special tax treatments, advance taxes, and multiple layers of withholding taxes should be scaled back, calling on the FBR to submit a detailed strategy to address these distortions. The report also reinforces the importance of separating tax policy formulation from tax administration. Under this approach, the FBR would focus solely on implementation and enforcement, while a newly established Tax Policy Office under the Finance Ministry would handle all aspects of policy development. This institutional shift, already underway, is intended to improve transparency, reduce conflicts of interest, and strengthen policy coherence.
In line with these reforms, Pakistan has moved to create the Tax Policy Office, which now reports directly to the Finance Minister. This restructuring aligns with broader IMF goals to modernize fiscal institutions and enhance governance within revenue authorities.
The IMF report sheds light on systemic weaknesses that have plagued Pakistan’s tax administration for years. It highlights that many exemptions and incentives are granted manually and lack a transparent, rules-based framework. This opens the door to rent-seeking behavior, lobbying, and informal negotiations between vested interests and government officials, eroding the fairness and efficiency of the tax system.
These governance concerns are particularly urgent given Pakistan’s low tax-to-GDP ratio, which remains among the lowest in the world. The IMF argues that without significant reforms to improve accountability, automate systems, and reduce discretion in tax matters, the country’s ability to generate sustainable revenue will remain compromised.
The Governance and Corruption Diagnostic Assessment forms part of the IMF’s broader engagement with Pakistan under the $7 billion Extended Fund Facility (EFF). As a condition for continued financial assistance, the IMF has pushed for key reforms, including publishing a tax expenditure report to assess the real costs of tax breaks, modernizing FBR’s risk assessment and auditing tools through digital technologies, and expanding oversight of tax administration practices.
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In recent years, the Fund has also advocated for reforms across anti-corruption institutions, including the National Accountability Bureau (NAB), calling for greater operational independence, judicial oversight, and transparency. These initiatives reflect a growing consensus among international lenders that good governance and fiscal reform must go hand in hand.
Experts argue that implementing these recommendations will not only help stabilize Pakistan’s economy but also restore public trust in its institutions. By tackling entrenched interests and bringing greater discipline to tax policy and administration, Pakistan has an opportunity to create a more equitable and transparent fiscal environment, one better equipped to meet its development needs without excessive reliance on debt.
The IMF’s latest report is both a warning and a roadmap. As Pakistan grapples with inflation, external debt pressure, and limited fiscal space, meaningful reform of the FBR and improved governance practices will be crucial to unlocking long-term economic stability.