Islamabad, June 8, 2023 – Pakistan has witnessed a significant increase in the cost of tax exemptions and concessions, reaching a staggering amount of Rs2.24 trillion, according to the estimates presented in the Pakistan Economic Survey 2022-23, released on Thursday. This figure represents a sharp rise of over 51 percent compared to the previous fiscal year.
The official numbers from the Federal Board of Revenue (FBR) indicate that the total tax expenditures for the fiscal year 2021-22 amounted to Rs1.48 trillion. The substantial increase in tax exemptions and concessions during the fiscal year 2022-23 reflects a growing trend.
In terms of income tax, the cost of exemptions experienced a marginal increase to Rs424 billion during the fiscal year 2022-23, compared to Rs400 billion in the previous fiscal year. While this increase may seem modest, it still contributes to the overall rise in tax expenditures.
However, the most significant surge in exemptions and concessions was observed in sales tax laws, where the cost rose by an alarming 75 percent to reach Rs1.29 trillion during the outgoing fiscal year, compared to Rs710 billion in the previous fiscal year. This substantial increase highlights the magnitude of concessions granted under sales tax regulations.
Furthermore, exemptions granted on customs duty also witnessed a significant rise of 52 percent, amounting to Rs522 billion during the fiscal year 2022-23, in comparison to Rs344 billion in the preceding fiscal year. This upward trend in customs duty exemptions signifies the government’s efforts to incentivize certain sectors or activities.
The escalating cost of tax exemptions and concessions poses both benefits and challenges to the economy. While these measures may provide relief and support to specific industries, they also impact revenue generation for the government. Balancing the need for promoting economic growth and ensuring a fair and efficient tax system remains a crucial task for policymakers.
It is essential for the government to assess and monitor the impact of tax exemptions and concessions on the overall fiscal health of the country. Evaluating the effectiveness and targeting of these measures will be instrumental in maintaining a sustainable and equitable tax regime.
Income Tax Expenditure Summary (Rs Million) Fiscal Year 2022-23
| Categories | Amount |
| Exemptions and Tax Concessions | 26,834 |
| Deductible Allowances | 14,506 |
| Tax Credits | 52,133 |
| Income Exempt from Tax | 232,398 |
| Reduction in Tax Rates | 24,444 |
| Reduction in Tax Liability | 4,738 |
| Exemption from Specific Provisions | 68,841 |
| Total Income Tax Expenditure | 423,894 |
Sales Tax Expenditure Summary (Rs Million) Fiscal Year 2022-23
| Categories | Amount |
| Zero Rating under Fifth Schedule to Sales Tax Act 1990 | 139,448 |
| Exemptions given to POL Products Through Various SROs | 632,950 |
| Exemption under Sixth Schedule on (Imports) | 257,537 |
| Exemption under Sixth Schedule on Local Supplies | 133,178 |
| Reduced Rates Under Eighth Schedule | 129,906 |
| Sales Tax on Cellular Mobile Phones under Ninth Schedule | 1,021 |
| Total Sales Tax Expenditure | 1,294,040 |
Customs Duty Expenditure Summary (Rs Million) Fiscal Year 2022-23
| Categories | Amount |
| Chapter-99 Exemptions | 22,240 |
| FTA & PTA Exemptions | 102,658 |
| Fifth Schedule Exemptions & Concessions | 172,978 |
| General Concessions: Automobile sector, E&Ps, CPEC, etc. | 192,950 |
| Export Related Exemptions | 30,878 |
| Total Customs Duty Expenditure | 521,704 |
READ MORE: Pakistan Economic Survey 2022-23 Reveals Volatility in Stock Market due to Uncertainties
