Key Takeaways
- GST on services accounted for a significant portion of provincial tax revenues.
- Sindh collected the highest provincial tax revenue despite lower GST share.
- Administrative weaknesses and property undervaluation limit tax collections in Punjab.
While general sales tax (GST) on services was the main driver of provincial tax collections in fiscal year 2025-26, a closer examination reveals significant differences in revenue mobilisation across Pakistan’s provinces. According to data compiled from provincial tax collections, GST on services accounted for 69.6 per cent of Punjab's total provincial tax revenues, followed by Balochistan at 66.7 per cent, Khyber Pakhtunkhwa at 60.8 per cent, and Sindh at 56.7 per cent.
Punjab appears to be the most dependent on GST, while Sindh has a more diversified revenue structure. However, these percentages require careful interpretation due to distinct economic conditions in each province. Under the IMF-backed reforms, all provinces have shifted from a positive list to a negative list regime for services, bringing more services into the tax net in fiscal year 2026.
More than 70 per cent of GST on services continues to come from the well-documented telecommunication sector. The sectoral composition of collections suggests improvement in enforcement across other taxable services. Beyond services tax, revenue mobilisation remains weak. Despite its smaller population, Sindh collected the highest provincial tax revenue of Rs608bn in FY26, substantially exceeding Punjab’s Rs519bn.
However, Sindh's lower GST share does not indicate weaker performance but reflects a stronger contribution from other provincial taxes, particularly Infrastructure Development Cess (IDC), which amounted to Rs180bn collected on imports entering through Karachi’s ports. This structural advantage is unavailable to inland provinces and highlights the province’s principal maritime gateway status.
Despite having Pakistan's largest urban centres and one of the most active real estate markets, Sindh collected only Rs1bn from property transfers, another Rs32bn from stamp duties, and Rs25bn from motor vehicles in FY26. These taxes remain modest relative to the province’s economy, suggesting that administrative weaknesses, property undervaluation, and limited enforcement continue to constrain tax collections.
Punjab presents a different fiscal profile. The province relies far more heavily on GST on services, which accounts for nearly 70 per cent of its total provincial tax revenues. However, Punjab has managed to offset the absence of port-based revenues by delivering comparatively stronger performance in conventional provincial taxes. Collections from transfer of property tax stood at Rs27bn, stamp duties at Rs54bn, and motor vehicle taxes at Rs43bn.
Khyber Pakhtunkhwa, with total collections of Rs79bn, faces a more challenging fiscal environment. The province has traditionally relied on IDC linked to trade with Afghanistan. IDC collection stood at Rs7bn in FY26 due to border closure, with the projection indicating that administrative weaknesses and limited enforcement continue to be significant barriers.
The data compiled from provincial tax collections underscore the need for improved administrative capacity and better enforcement mechanisms across all provinces to ensure a more equitable distribution of revenue. The focus on GST on services has masked underlying weaknesses in other areas of taxation, highlighting the importance of diversifying revenue sources.
