Tax expenditure report shows 70% jump in reduced-rate sales tax concessions despite efforts to curtail tax expenditures
ISLAMABAD: The Federal Board of Revenue has reported a sharp increase in sales tax concessions granted through reduced tax rates, with the cost to the national exchequer reaching Rs636 billion during 2026.
According to the FBR’s Tax Expenditures Report 2026, sales tax concessions provided under reduced rates rose by nearly 70 per cent compared to Rs374 billion recorded in the previous year.
The concessions were granted under the Eighth Schedule of the Sales Tax Act, 1990 and represent one of the largest categories of tax expenditures in the country’s indirect tax regime.
Total sales tax relief reaches Rs1.27 trillion
The report revealed that total sales tax exemptions and concessions amounted to Rs1.27 trillion during 2026, compared with Rs1.24 trillion in the preceding year, reflecting an increase of 2.42 per cent.
The figures highlight the substantial revenue foregone through various tax incentives, exemptions and reduced-rate regimes provided under the sales tax framework.
The increase comes despite ongoing government commitments to rationalise tax expenditures and broaden the tax base as part of wider fiscal reforms.
IMF-backed reforms aim to reduce tax expenditures
The rise in sales tax concessions has occurred at a time when the government is pursuing fiscal consolidation measures under its economic reform programme supported by the International Monetary Fund (IMF).
Pakistan has repeatedly pledged to review and gradually reduce tax exemptions and concessions that erode the tax base and limit revenue mobilisation.
However, the latest report indicates that concessions granted through reduced sales tax rates have continued to expand significantly despite broader reform efforts.
Import-related concessions decline sharply
While concessions under reduced tax rates increased substantially, several other categories of sales tax relief recorded notable declines.
According to the report, sales tax concessions on imports granted under the Sixth Schedule of the Sales Tax Act, 1990 fell sharply to Rs261 billion, compared with Rs372 billion in the previous year.
The reduction suggests a tightening of tax incentives available on imported goods as authorities seek to improve revenue collection and rationalise exemptions.
Relief on local supplies also reduced
Similarly, the tax expenditure associated with concessions on local supplies under the Sixth Schedule declined to Rs306 billion from Rs330 billion recorded a year earlier.
The decrease reflects ongoing efforts by tax authorities to limit exemptions and bring more economic activities within the standard sales tax regime.
Tax experts note that reducing exemptions on imports and local supplies is generally viewed as a key component of broadening the tax base and improving the efficiency of the tax system.
Balancing revenue needs and economic support
The latest figures underscore the challenge facing policymakers as they attempt to balance revenue mobilisation objectives with the use of tax incentives to support specific sectors and economic activities.
While reduced-rate sales tax concessions continue to grow, the government has simultaneously sought to curtail other forms of tax relief to strengthen public finances.
The Tax Expenditures Report 2026 provides a detailed picture of the fiscal cost of various exemptions and concessions, highlighting the significant impact such measures have on overall tax revenues and budgetary resources.
