- Improve governance and performance of state enterprises to broaden non-tax revenue base predictably
The non-tax revenues (NTR) assists the federal government to meet expenditures including debt-servicing, development, subsidies, keeps fiscal deficits manageable, and extends fiscal breathing space — especially when tax collection (through direct/indirect taxes) underperforms. Non-tax revenue for Pakistan includes things like profits transferred from the State Bank of Pakistan, royalties and levies (petroleum levy, natural gas royalties etc.), fees, dividends from state-owned enterprises, and several other receipts not derived from a regular taxation system. In the recent fiscal year 2024–25, NTRs surged by almost 68% and reached Rs 5.27 trillion — about 4.6% of GDP and remained highest in almost previous 16 years. The statistics show that Pakistan’s tax-to-GDP ratio remains very low, non-tax revenue often serves as a significant cushion for the government’s finances.
The national composition of NTR diversifies across the countries, which depends largely on each country’s determinations to innovate and diversify respective sources of revenue. Countries have used a variety of these fiscal instruments, from levies on natural resources extractions to the environment pollution charges. Each country should draw non-tax revenue sources according to their own economic contexts, fiscal growth objectives, and target groups.
Non-tax revenue seems volatile, and often depicting fluctuations in the natural resources value, therefore need to bring sustained collection targets based on prudent financial administration. The contemporary encounters to mobilizing more revenue from non-tax sources include lack of resilient financial and non-financial institutions, appropriate infrastructure, and effective relation among central government and provincial governments.
Resource rich states depend mostly on the mining royalties on extraction and sale of minerals and oil, whereas mineral poor states rely more on fines, administrative fees, and other service related fiscal sources. The volatility of such fiscal instruments brings importance and effectiveness of respective usage of tools, in the short term and long term.
NTR can tackle structural challenges in the process of revenue collection. Amongst, most of the empirical problems involved in taxing the informal sector don’t affect process of the non-tax revenue collection. NTR may be gathered as readily from the economic agent in the larger informal sector of the country as from those in the targeted (highly taxed) formal sector. For instance, user charges (health and education services) and payment for services (electricity, water, TV, and telecom utilities) can be levied on the services used by almost all the masses.
If NTR underperforms in 2025 (or in near future years), multiple negative effects may ripple through the local economy. According to a recent fiscal risk analysis, a slump in NTR — e.g. due to lower SBP profits or reduced petroleum levies — would significantly worsen the fiscal deficit. The government may be forced to borrow more to bridge the fiscal deficit, increasing domestic or foreign debt and raising interest payments. This undermines fiscal sustainability, may constrain future spending on social and development sectors, and leaves less space for local or foreign investment.
With lesser revenue inflows (through taxes), funding for the development projects (infrastructure, health etc.) may be delayed, which daunts long term growth potential. The government has identified “poor non-tax revenue performance” as a key risk in its budget outlook. Subsidies, social safety projects, and welfare expenditures may also strain, which can aggravate the inequality and social stress, if inflation or cost-of-living is high. With tighter fiscal position and higher debt burden, the government may resort more borrowing and ad-hoc taxes, which creates economic distortions. It leads to a drop in development spending and infrastructure projects stall, hence affects growth, jobs, investment and public welfare. It also leads to chronic underfunding which erodes institutional capacity, reduce quality of public services (health, education, social welfare, energy), thereby restraining human capital development and overall economic potential.
Country’s federal budget devotes a large chunk to the debt servicing. With lower NTR, servicing debt has become harder, and the government can be forced to daunt essential services, raise taxes, or borrow further from IFIs. Such a deteriorating fiscal position may weigh on reserve adequacy, currency stability, and external balance, if government tries to meet international obligations without enough revenue.
To mitigate the risks of weak non-tax collection, country could work to improve governance and performance of state enterprises, so that they reliably generate profits or dividends; and broaden non-tax revenue base for economic stabilization or windfalls, but on predictable sources (fees, service charges, regulated enterprise profits etc). Moreover, country needs to increase transparency and institutional safeguards to ensure NTRs are used for development rather than consumed by debt servicing or subsidy burdens.
NTR acts as vibrant and vital buffer, and helping reduce fiscal deficits, fund spending, and bring macro stability. However, relying too heavily on volatile sources makes fiscal outcomes fragile. A drop or shortfall in non-tax collection in 2024-25 risks widening the budget deficit, squeezing development, increasing debt, social-sector spending, and ultimately slowing economic growth. For a long-term economic stability, Pakistan requires more broadened, stable, and institutionally sound revenue base, both in tax and non-tax streams.