• Sales tax exemptions jump almost 50 percent to RS4.25tr
• Income tax exemptions increase 68pc to more than RS800BN
Islamabad: Fiscal exemptions granted by the Federal Income Board (FBR) increased to a historical maximum of RS5.84 billion in the outgoing fiscal year, marking a 51 percent increase of RS3.879TR one year, according to the economic survey of Pakistan 2024-25 invested by the Minister of Finance Muhamad Aurengez on Monday.
The unprecedented increase in fiscal concessions comes at a time when the FBR is dealing with important income deficit, which makes this the second consecutive year of record exemptions. In FY24, exemptions fired 73.3pc.
The cost of tax exemptions has increased for the seventh consecutive year despite the government’s statement that exemptions would gradually decrease under the International Monetary Fund (IMF) program.
Fiscal exemptions refer to income that is not for the State in several categories to different industries and other groups. This is mainly due to exemptions on raw materials and semi-finished products, as well as specific sectors aimed at reducing entry costs for export-oriented industries. In addition, specific people are eligible for tax exemptions on certain advantages and privileges.
The robust increase in tax exemption costs is mainly due to the exemption of RS1.796TR in oil, oil and lubricant products (POL) supplied nationwide and imported. Last year a similar amount of exemption was reported.
However, this exemption is largely fiscal, while the provinces do not receive any participation of this amount, the federal government recovers the total amount through the Levy of Petroleum Development (PDL), which is not part of the divisible group.
As a result, the federal government incurs a minimum real cost, but the provinces do not run out of PDL collections.
The IMF is concerned about these tax exemptions and has requested that the government abolish them. The government withdrew taxes in the budget last year. The next federal budget 2025-26 will show the real number of exemptions that will be eliminated to meet the ambitious income target of the FBR.
The value of tax exemptions has increased over the years. In fiscal year 2018, it was from RS540.98 billion, which increased to RS972.4bn in fiscal year 2019, at RS1.49TR in the 2010 fiscal year and then it was slightly relieved to RS1.314TR in the fiscal year21, before increasing to RS1.757TR in the Fiscal Year 2012. These fiscal concessions extended to all sectors to promote industrialization.
Sales tax exemptions increased by 48.8pc to RS4.253TR from RS2.86bn in fiscal year 2000, mainly due to import exemptions and the local supply of POL products, and imports under the fifth and sixth schedules of the Sales Tax Law.
The cost of exemptions with zero rating under the fifth schedule increased to RS683.43bn in fiscal year 2006 of RS206.05Bn in fiscal year 2014, an increase of 232pc. This is because the government relaxed regimes with zero rating for five export -oriented sectors and some other sectors.
In local supplies, the cost of exemption at sixth schedule decreased to RS461.09BN in fiscal year 2015 from RS613.07BN in the previous year, a 25 percent decrease. This is due to a massive withdrawal of exemptions in the elements under that schedule.
The cost of reduced rates under the eighth schedule increased to RS617.35bn in fiscal year 2000 RS357.99bn in the previous year, indicating a growth of 72.4pc.
The exemption of sales tax on oil goods increased to RS1,796tr in FY25 from RS1.257TR, which reflects a growth of 43pc.
Income tax exemptions increased to RS800.82bn in fiscal year 200, this increased mainly due to the total exemption of income under part 1 of the second programming of the Income Tax Ordinance, costing the RS443.45bn farm in fiscal year 2015, above RS293.46bn during the previous year, an increase of 51 PC.
At the same time, the cost of fiscal credit extended to entrepreneurs in the Income Tax rather than quadruple to RS101.04bn in fiscal year 2015 from RS24.37BN last year.
The total fiscal exemption from Customs reached RS785.87bn in fiscal year 2015, compared to RS543.52bn during the previous year, showing an increase of 44.6pc.
Posted in Dawn, June 10, 2025
