Tax breaks increase for the sixth consecutive year.
Significant rise due to Rs1.338 trillion waiver on petroleum products.
ISLAMABAD: In a challenging fiscal year, Pakistan witnessed its highest-ever increase in tax exemptions, rising by 73.24% to a record Rs3.9 trillion in FY24. The Pakistan Economic Survey 2023-24, unveiled by Finance Minister Muhammad Aurangzeb, indicated that the Federal Board of Revenue (FBR) provided Rs3.879 trillion in exemptions, up from Rs2.239 trillion in FY23.
This increase is largely attributed to a Rs1.338 trillion waiver on domestically supplied and imported petroleum products. Despite these tax exemptions, the government managed to offset costs by collecting substantial amounts through the petroleum development levy (PDL), minimizing the net loss.
The International Monetary Fund (IMF) has expressed concerns over these waivers, urging the government to reduce them to meet ambitious revenue targets in the upcoming budget.
The value of tax exemptions has consistently risen, from Rs540.98 billion in FY18 to Rs1.757 trillion in FY22. These concessions aim to promote industrialization but result in significant revenue losses.
Petroleum Product Waivers:
The sales tax exemption on petroleum products led to a Rs1.257 trillion loss in FY24. The government compensated for this loss through the PDL, which is retained by the central government, causing a net loss to the provinces. Exemptions at the import stage on POL products accounted for Rs81.22 billion.
Additional Measures:
The government plans to reduce exemption costs by increasing sales tax on cellular phones, which cost Rs33.057 billion in FY24. The import of mobile phones surged by 209%, reaching $1.462 billion in the first ten months of FY24.
Income Tax Exemptions:
Income tax exemptions rose by 12.51% to Rs476.96 billion in FY24, driven by full exemptions under the Second Schedule of the Income Tax Ordinance and government income exemptions.
Sales Tax Exemptions:
Overall sales tax exemptions increased by 120.86% to Rs2.858 trillion in FY24. The general sales tax rate was raised from 17% to 18% to boost revenue.
Zero-Rated Exemptions:
Zero-rated exemptions under the fifth schedule increased by 47.76% to Rs206.05 billion in FY24 due to relaxed regimes for export-oriented sectors.
As Pakistan navigates fiscal challenges, these exemptions highlight the balance between stimulating economic activity and maintaining revenue streams. The upcoming budget will reveal the government’s strategy to manage these exemptions while meeting revenue goals.
Story by Mubarak Zeb Khan
