ISLAMABAD   -   In an unprecedented development, the tax exemptions given to various sectors of the economy have gone up to Rs972.4 billion during current fiscal year.

Pakistan’s tax expenditures in the form of exemptions have been recorded at Rs972.4 billion during the ongoing financial year 2018-2019 as against Rs540.98  billion of the previous fiscal year 2017-18, showing an increase of over 79.7 percent, the latest Economic Survey showed on Monday.

The International Monetary Fund (IMF) had already expressed concerns over the massive tax exemptions given to the various sectors. The government is likely to withdraw major tax exemptions in the upcoming budget on the direction of the IMF. The withdrawal of tax exemptions would help the Federal Board of Revenue (FBR) to meet the tax collection target of Rs5.55 trillion in next fiscal year.

According to the Survey, the breakup of tax exemptions showed that Rs141.6 billion exemptions are given in income tax during ongoing fiscal year. Meanwhile, the cost of sales tax exemptions has been estimated to be Rs597.7 billion and cost of customs exemptions has been projected at Rs233.1 billion during 2018-2019.

INCOME TAX EXEMPTIONS

The overall income tax exemptions have swelled to Rs141.6 billion during FY2019 from Rs61.8 billion of the previous fiscal year, an increase of Rs79.8 billion. Tax credit availed for balancing modernisation and replacement of plant & machinery has cost Rs91 billion. Tax loss due to exempt business income claimed by IPPs under clause (132) of Part 1 of the Second Schedule of Income Tax Ordinance 2001 caused tax loss of Rs18 billion. Similarly, tax relief of Rs2.45 billion was given regarding tax credit for charitable donations and Rs5.5 billion as tax credit for newly established industrial undertakings.

SALES TAX EXEMPTIONS

The government has given sales tax exemptions worth of Rs597.7 billion. According to the survey, sales tax exemptions were provided under the export facilitation schemes and general and sector specific SROs. One SRO-based sales tax exemption stood at Rs86.7 billion in 2018-19. This exemption was mentioned because of five export sectors — leather, textile, carpets, surgical and sports goods. At present, the textile, garments, leather, surgical goods and sports goods manufacturers enjoy zero-sales tax facility on their exports.

The cost of sales tax exemptions because of local supply under 5th Schedule cost Rs53.5 billion. Meanwhile, tax exemption given under imports under 6th Schedule cost Rs53.7 billion in 2018-19. And the cost of exemptions on local supply of items placed under the 6th schedule arrived at Rs247.3 billion during 2018-19. The cost of exemption on the import of products under 8th schedule stood at Rs62.7 billion this year.

CUSTOMS EXEMPTIONS

The customs exemptions surged to Rs233.1 billion in FY2019 as compared to Rs198.2 billion in FY2018. The increase was mostly on account of preferential trade agreements (PTAs), especially with China that Pakistan signed in the recent past and other duty exemptions. Maximum exemptions were given in customs duties to the original equipment manufacturers (OEMs) of the automotive sector and vendors who availed Rs38.8 billion exemptions in 2018-19. Similarly, exemptions on imports from China under free trade agreement (FTA) recorded at Rs31.6 billion in the ongoing fiscal year.

Duty exemptions on imports from South Asian Association for Regional Cooperation and Economic Cooperation Organisation countries stood at Rs348.8 million this year. Exemption from customs duty on import into Pakistan from Malaysia cost Rs3.16 billion, exemption from customs duty on import into Pakistan from Indonesia under Pak-Indonesia PTA cost Rs3.95 billion and exemption from customs duty on imports from Sri Lanka cost Rs2.4 billion during the first year 2018-19. Exemption from customs duty for vendors of automotive sector cost Rs26.6 billion and other exemptions/ concessions cost Rs100 billion during the period under review.