Taxation is largely dependent on the nature of the economy and its direction of growth or otherwise. There are different measures for assessing an economic situation. It can be based on both economic indicators of some critical and strategic nature as well as on its ratings given by international rating agencies, such as Moody’s Investor Services and Fitch Rating. Such international ratings offer insights into the perceptions of investors and their assessment of the economy of a certain country. Moody’s Investor Services has rated Pakistan at Caa3, a rating issued on February 28, 2023; while Fitch’s Rating has slightly lifted Pakistan’s economic condition as CCC, issued on July 10, 2023, but it will not bring any material change as Islamabad remains in the “very high credit risk” category. Both ratings reveal a very dismal situation of the economy of Pakistan and a much weaker credit rating, thus, alluding to higher borrowing costs. On the other hand, economic indicators also reveal the current dismal situation as GDP growth for 2023-4 has been projected to be 0.29 per cent. During the fiscal year 2022-23, there has been a steady decline in most economic indicators. Large Scale Manufacturing (LSM) during July-March 2023 declined by 8.11 per cent. The overall fall in the industry has been reported to be 2.94 per cent. The services sector also witnessed dismal growth of 0.866 per cent. As economic indicators exhibited a steady decline with their implications and challenges for tax targets and collections projected for the fiscal year 2023-24, there is growing inflation as suggested by Consumer Price Index (CPI), which increased to 36.4 per cent in April 2023. International ratings reveal a very dismal situation of the economy of Pakistan and a much weaker credit rating, thus, alluding to higher borrowing costs. Moreover, FBR was assigned a revenue target for collection during the fiscal year of 2022-23 in its four major tax jurisdictions: customs, income tax, sales tax, and federal excise duties. By the end of the last working day of the fiscal year 2022-23, the Federal Board of Revenue (FBR) provisionally collected Rs 7.144 trillion in taxes against the target of Rs 7.640 trillion. The target was missed by Rs 496 billion despite the imposition of nearly Rs800 billion in additional taxes, including a mini-budget introduced in February this year. The sector, which has shown some reasonable growth in an otherwise very dismal economic situation, i.e., agriculture with 1.55 per cent growth is outside the scope of the federal government. Even otherwise also, revenue measures as envisaged by FBR don’t offer great potential as its estimation for enhanced revenue from the proposed measures is only around Rs 200 billion. Some may argue that there can be a tax increase of approximately 30 per cent in the view of inflation expected to further rise from 34 per cent to 38 per cent. This seems plausible academically in a perfect world, however, other factors are also expected to intervene and dampen any such linear and simplistic expectations and estimations, as inflation itself will reduce trade and other economic activities, therefore national economic productivity, thus reducing incomes and any potential of increase in federal revenues. However, one major factor, which needs to be kept in mind while making any final assessment of the budgetary targets is the performance of FBR. Many researchers have taken the stance that tax collection and tax to GDP ratio are primarily the functions of the strength of the tax machinery and tax administration. Performance and strength of FBR as administrative machinery can be measured through a variety of indicators and parameters. One major aspect is the size and scale of its contributors i.e., taxpayers. Tax policy and tax reforms have long targeted an increase in taxpayers, which has remained a long-standing policy challenge. In income tax, there are 7.6 million registered direct taxpayers. However, only 3.6 million persons file tax returns. Out of these 3.6 million filers of income tax return, only 2.2 million file taxes while the remaining 1.4 million file only zero/nil returns, mostly to avoid any penal consequences or to benefit from the status of tax-filers in commercial undertakings bringing the benefit of lower tax rates. It is estimated that only 13,958 persons contribute 75 per cent of total income tax, constituting an amount of Rs1,194 billion. The word person here is being taken in its legal sense, which includes both business and non-business or individual persons. Similarly, in sales tax, there are only 217,328 total filers of tax returns. Out of these, 67,885 file tax also through their tax returns. However, the number of nil filers is 39,078 and of null filers is 110,365. One can assess that only 31 per cent of total filers pay tax along with the tax returns. However, further differentiation and categorization reveal that only 0.54 per cent of tax filers and 0.17 per cent of total filers contribute to the bulk of tax collection aggregating to 75 per cent and it amounted to Rs 696 billion of the total sales tax collection. This fact reveals both sub-optimal performance of the tax machinery as well as tax potential, which could have been tapped for much higher revenue. Keeping in view the tax potential and illustration of the tax gap, it can be safely assumed that the budgetary targets of tax collection are highly ambitious and can be achieved through exploring new themes and un-chartered territories, a subject matter to be explored separately. (Concluded) Saud Bin Ahsen has done MPA from Institute of Administrative Sciences (IAS) Lahore and can be reached at saudzafar5@gmail.com