ISLAMABAD  - Keeping in view the expected political pressure as well as international trade treaties, the incumbent government is unlikely to withdraw all tax exemptions worth of Rs 480 billion as committed with International Monetary Fund (IMF) for extended fund facility worth of $6.64 billion.
Pakistan had assured the IMF to withdraw the tax exemptions worth of around Rs 480 billion in next three years. Under the plan given to the IMF, the government would withdraw tax exemptions in three phases, starting from July 1, 2014, and its last phase will be implemented by the fiscal year 2016-17. However, officials believe all exemption might not be withdrawn due to political pressure, as it could not eliminate tax exemption on pensioner’s income and some are protected under international trade treaties. Similarly, sales tax exemption on import of crude oil and medicines will not be withdrawn in order to keep their prices maintain.
“Tax incentive given in the shape of Free Trade Agreements (FTA) or Preferential Trade Agreements (PTA) to other countries will also be honoured. Similarly, tax exemptions granted to IPPs or diplomats would stay as they were done under international obligations which would be honoured”, one of the top official of FBR said.
However, the FBR said that government would go to eliminate the tax exemptions in three years. “Federal Board of Revenue will gradually withdraw the tax exemptions, which will start from July 1 2014 and process will complete in three year”, said Senior Member for Inland Revenue Service (who is also spokesperson) FBR, Shahid Hussain Asad while talking to The Nation. He said that earlier, government was planning to start withdrawing exemptions from April this year.
Sources in FBR informed that government is avoiding withdrawing exemptions owing to its likely inflationary pressure in the country, which is already on the higher side.
The government is currently giving huge tax exemption worth of Rs 480 billion to different sectors.  The value of sales tax exemptions has been estimated at around Rs245 billion. Customs duties’ exemptions are around Rs135 billion and income tax exemptions are estimated at Rs90-95 billion.
The official papers showed that government had given sales tax exemptions at import stage and on domestic supply of goods and services. Sales tax exemptions were available on certain items including tractors, fertilizers and pesticides. Meanwhile, Customs exemptions are mainly given on raw materials and components, plants, machinery and equipment imported by high-tech, priority and value added industries, imports for energy sector projects and exemptions to exploration and production companies. Some of these exemptions are due to internationals contractual obligations.