Tax Expenditure Report 2026 says separate estimates do not reflect the total revenue impact of removing all tax concessions.
ISLAMABAD: The Federal Board of Revenue (FBR) has clarified that the estimated fiscal cost of individual tax expenditure provisions cannot simply be added together to determine the total revenue the government would generate by abolishing all tax concessions.
According to the Tax Expenditure Report 2026, each tax expenditure is calculated independently on the assumption that every other provision of the tax system remains unchanged. As a result, the sum of individual estimates does not represent the actual revenue that would be realised if all exemptions, deductions, tax credits and other concessions were withdrawn simultaneously.
Independent Estimates
The FBR explained that every tax expenditure included in the report is assessed on a standalone basis rather than as part of a broader package of tax measures.
This methodology is intended to estimate the fiscal cost of each individual provision while assuming that the remainder of the tax system continues to operate without any changes.
The report cautioned that adding these separate estimates together would produce misleading results because it ignores the interaction between different tax provisions.
Progressive Tax Structure
One of the principal reasons identified by the FBR is Pakistan’s progressive income tax system, under which higher levels of taxable income are subject to higher tax rates.
According to the report, multiple deductions and exemptions can reduce a taxpayer’s taxable income sufficiently to place them in a lower tax bracket.
If all tax concessions were abolished at the same time, the taxpayer could move into a higher tax bracket, resulting in a larger tax liability than indicated by the separate estimates for each individual concession.
Interaction Between Tax Benefits
The FBR also highlighted that many tax expenditure provisions are interconnected.
Some tax benefits exist only because other exemptions or concessions are available. Consequently, estimating each provision independently may lead to an element of double counting if the figures are aggregated.
The report notes that these interactions between different tax provisions are not incorporated into the individual estimates presented in the Tax Expenditure Report.
Estimates Intended as a Policy Guide
The FBR emphasised that the figures published in the report should be viewed as approximate estimates of the fiscal cost of individual tax expenditure provisions rather than precise projections of the additional revenue that would be generated by eliminating all tax concessions simultaneously.
According to the tax authority, the methodology is designed to improve transparency by measuring the cost of specific tax preferences while recognising that interactions within the tax system make it impractical to derive a comprehensive revenue estimate by simply adding together the value of individual tax expenditures.