Rs3.9tr tax exemptions given despite IMF opposition

ISLAMABAD    -  At the time when the country is struggling to generate revenues, the federal government has given massive tax exemptions of Rs3.9 trillion in outgoing fiscal year 2023-24 despite strong opposition from the International Monetary Fund (IMF).

The volume of tax exemptions exceeded to Rs3.9 trillion as compared to Rs2.2 trillion in the preceding fiscal year, according to the latest Economic Survey of Pakistan 2023-24, which was released on Tuesday. The Economic Survey showed that the government had given income tax exemptions worth Rs476.96 billion in FY24 as compared to Rs423.9 billion in the last year.

Meanwhile, the cost of sales tax exemptions has been estimated to be Rs2.86 trillion in 2023-24 as against Rs1.294 trillion. Meanwhile, the cost of customs exemptions has been projected at Rs543.5 billion as compared to Rs521.7 billion in the previous financial year.

The IMF is continuously asking Pakistan to withdraw tax exemption, which is increasing with the passage of time. Finance Minister Muhammad Aurangzeb has not replied to the question during the launching of the Economic Survey. However, he hinted for withdrawal of some exemptions in the annual budget. In income tax, the government has given exemptions worth of Rs57.5 billion on government income, Rs5.9 billion on deductible allowances, Rs24.37 billion on tax credits, Rs293.46 billion exemption from total income, Rs25.49 billion as reduction in tax rates, Rs4.27 billion as reduction in tax liability, Rs62.8 billion exemption from specific provisions of the income tax and Rs3.179 billion as SROs related exemptions. The government has given sales tax exemptions worth Rs2.9 trillion, which was Rs1.249 trillion in FY23, showing an increase. According to the survey, the government has given Rs206 billion exemption under Fifth Schedule (Zero Rating), Rs461 billion as Sixth Schedule (Local supplies), Rs214.7 billion as Sixth Schedule (Imports), Rs358 billion under Eighth Schedule (Reduced Rates), Rs208 billion Twelfth Schedule (Additional Tax), Rs1.257 trillion as POL Products (SRO 321/2022) (Local supplies), Rs81.225 billion as POL Products (SRO 321/2022) (Imports) and Rs25.1 billion as Various Sections (Zero Rating).

The customs exemptions surged to Rs542.5 billion in FY24 from Rs521.7 billion in FY23. The increase was mostly on account of preferential trade agreements (PTAs) and Free Trade Agreements. FTA & PTA Exemptions cost R44.1 billion. 5th Schedule Exemptions & Concessions cost Rs190 billion and Rs146 billion as General Concessions and Rs127.26 billion as Export Related Exemptions.

According to the Economic Survey, In FY 2024, the FBR tax collection target was Rs 9415 billion. Various new tax policies and administrative measures were introduced to achieve this target. These measures yielded substantial results, particularly in strengthening the collection of domestic taxes. Furthermore, removing import restrictions facilitated a recovery in tax revenues derived from import related sources. This achievement is noteworthy, especially considering the contraction observed in FY 2023.

FBR net provisional tax collection grew 30.6 percent to Rs 7,361.9 billion in July-April FY 2024 against Rs 5,637.9 billion last year. The domestic tax collection registered 32.3 percent growth to reach 6,464.3 billion during July-April FY 2024 from Rs 4,886.1 billion the previous year. An amount of Rs 411.1 billion has been paid back as refunds during July-April FY 2024 against Rs 282.0 billion in the same period of last year. During July-April FY 2024, direct tax share increased considerably to 48 percent from 45 percent last year. Meanwhile, the contribution of indirect taxes was reduced to 52 percent in July April FY 2024 from 55 percent last year. The increasing share of direct taxes shows a positive development consistent with progressive taxation principles. The revenues from direct taxes have increased significantly, rising by 39.7 percent in the first ten months of FY 2024. The net collection increased to Rs 3,513.2 billion in July-April FY 2024 from Rs 2,514.9 billion recorded in the same period last year.

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