All tax exemptions to have sunset clause: MTEF

ISLAMABAD: The ministry of finance on Monday launched Medium-Term Economic Framework (MTEF), which envisaged that all permanent exemptions to be withdrawn or have a sunset clause.

The MTEF said that presently tax policy has a predominant revenue focus and as such is likely to create distortions in the economy which can adversely affect the growth and equity objectives.

In addition, even the revenue objective is compromised by large scale exemptions.

To correct this shortcoming, the government intends the following:

i) Enact a law to ensure that no tax exemption is allowed through law or notification without an estimate of its cost independently by the tax department as well as the concerned ministry. Such cost will be made public before notification of the exemption.

ii) Review all existing exemptions, with the purpose of eliminating as many of those as possible. Even if an exemption is to be retained its cost will be determined and made public. Ministry of Finance to publish annually a statement of tax expenditures to show how much revenue is being foregone due to exemptions.

iii) Ensure that all exemptions, existing or newly proposed, will have a sunset clause (ideally not more than 5 years).

iv) Publish a list of all government owned, quasi-government and government-linked enterprises availing tax exemption/concession in any way along with quantification of the tax expenditure. In addition, a plan be prepared for phasing out of these concessions.

v) Withdraw FBR powers to issue SROs to grant exemptions. This power will vest only with the Parliament.

vi) Ensure that all non-procedural existing SROs will expire at the end of the fiscal year. Steps taken over the last two years to incorporate all exemptions granted through SROs to be made part of the body of law.

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