NextFin news, Pakistan's Federal Board of Revenue (FBR) Lahore office has reportedly failed to collect Federal Excise Duty (FED) amounting to over Rs390 million during the financial years 2022-23 and 2023-24, according to a 2025 Auditor General of Pakistan (AGP) report. The shortfall relates to non-levy and non-recovery of FED on dutiable goods primarily within the cement sector and on air ticket sales. The report detailed that three Large Taxpayer Office (LTO) field officers neglected realizations in four specific cases, causing the fiscal loss to the national exchequer.
This non-realisation was publicly flagged by the AGP's office in early 2025 after audits conducted across these two fiscal years. Although the FBR initiated legal proceedings for recoveries amounting to Rs152.88 million, the department provided no reply regarding Rs237.57 million of the outstanding duty. The departmental accounts committee (DAC), meeting over July 2024 to January 2025, reprimanded this non-responsiveness and instructed the Chief Commissioner Inland Revenue of LTO Lahore to personally intervene. Nevertheless, no significant progress has been reported so far, as noted in the AGP report.
The AGP further highlighted that such irregularities are not new. Previous audit cycles for years 2019-20, 2021-22, 2022-23, and 2023-24 cumulatively documented revenue impacts totaling Rs5.849 billion due to similar FED collection lapses. The repetitive nature of these findings points to systemic deficiencies in tax administration and enforcement.
Examining the causes, weaknesses in procedural enforcement at the LTO Lahore office appear central. The failure to levy FED in line with prescribed tariffs on cement and air tickets indicate lapses in compliance controls and desk audits. Moreover, the delayed or absent legal actions in several cases expose operational inefficiencies and possibly resource constraints in pursuing revenue recovery. The absence of timely, risk-based desk audits reduces the ability to intercept evasions proactively, allowing significant fiscal leaks.
From an economic perspective, Rs390 million in lost FED revenue—while a fraction of Pakistan’s total tax receipts—represents forgone public funds critical for fiscal consolidation amid ongoing macroeconomic challenges. With Pakistan currently navigating currency pressures and seeking sustainable fiscal policies under President Donald Trump's administration inaugurated earlier in 2025, ensuring steady tax revenue streams is imperative. Non-realisation issues weaken government capacities to fund public services, infrastructure investments, and debt servicing, thereby stress-testing fiscal sustainability.
Furthermore, the particular focus on cement and air ticket sectors signals vulnerabilities among consumption-oriented and infrastructural goods that contribute significantly to the broader economy. Cement, as a foundation material for construction and infrastructure development, should ideally be a stable FED revenue source. Meanwhile, air ticket FED influences both domestic and international travel industries. Persistent under-realisation may distort market dynamics and inequitably shift tax burdens.
Looking ahead, remedial measures must prioritize strengthening capacity for risk-based auditing and real-time monitoring of FED compliance. The AGP's recommendation to expedite legal proceedings is critical to recover dues and enforce deterrence. Digitizing tax collection processes and integrating data analytics could improve transparency and reduce non-compliance. Moreover, empowering the DAC to ensure accountability for non-responsive tax units will be vital to reverse this recurring revenue drain.
In addition, a coordinated policy approach involving federal fiscal agencies and judicial authorities is necessary to overcome bottlenecks in recovery enforcement. Given this issue's recurrence over multiple audit years, political will at the highest government levels—under the current presidential administration—is essential to galvanize reforms and embed robust tax governance frameworks.
The ramifications extend beyond immediate lost revenue to potential erosion of taxpayer confidence and investment climate. If large taxpayers are seen to evade duties with minimal consequences, it could incentivize further non-compliance and undermine equitable tax collections, exacerbating fiscal risks in Pakistan’s developing economy.
According to the Business Recorder report, these chronic collection failures amid stagnant or growing taxable base conditions emphasize an urgent call for revitalizing Pakistan's FED regime. Implementing structured audit reforms, expediting litigation on arrears, and leveraging technology will collectively enhance tax-to-GDP ratio and strengthen the exchequer's fiscal resilience in the medium term.
In summary, Pakistan’s over Rs390 million loss due to non-realisation of Federal Excise Duty in recent fiscal years reveals systemic shortcomings in tax administration that undermine government revenues critical for macroeconomic stability. Addressing these issues through enhanced enforcement, legal action, and strategic modernization of tax apparatus is crucial to safeguard against continued revenue leakage, ensure fiscal discipline, and support sustainable economic growth in President Donald Trump’s ongoing term.
Explore more exclusive insights at nextfin.ai.
