Karachi, July 13, 2025 – The Federal Board of Revenue (FBR) has revealed a substantial increase in sales tax exemptions on imports, marking a 74% surge during the tax year 2025, as per the recently published Tax Expenditure Report 2025.
According to the FBR, a total of Rs372.53 billion in sales tax exemptions were granted on imported goods during the fiscal year 2025, compared to Rs214.68 billion in the previous fiscal year. This significant rise highlights a growing trend in import-related tax relief, despite government efforts to rationalize exemptions and expand the tax base.
In contrast, the sales tax exemptions granted on local supplies witnessed a notable decline. For tax year 2025, these exemptions dropped to Rs330.54 billion, down from Rs461.09 billion recorded in the preceding fiscal year. This shift indicates a change in the government’s tax policy focus, possibly aimed at encouraging local production while controlling unnecessary imports.
The FBR clarified that these exemptions—both for imports and domestic supplies—were extended under the Sixth Schedule of the Sales Tax Act, 1990, which outlines specific categories and goods eligible for tax relief. The total exemptions under this schedule reached Rs706.07 billion for FY2025, compared to Rs675.77 billion in FY2024.
While these figures suggest an overall increase in tax exemptions, they also reflect a growing imbalance, with import-related relief outpacing that for domestic trade. This trend may raise concerns within policy circles, especially in light of Pakistan’s commitment to the International Monetary Fund (IMF) to gradually phase out unnecessary tax breaks and make the taxation system more transparent and equitable.
The FBR is under pressure to reform the sales tax regime, plug revenue leakages, and reduce tax expenditures that distort market competitiveness. Though some exemptions are necessary to support strategic sectors such as health, education, and food security, the surge in import-related sales tax exemptions could undermine efforts to promote local industry and increase tax revenue.
Analysts suggest the FBR must review the effectiveness of current exemptions and align them with long-term economic goals to achieve fiscal sustainability.