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FBR estimates Rs70bln in revenue losses to exemptions in FY17

By Shahnawaz Akhter
April 11, 2017

CPEC, exports package

KARACHI: Tax authorities have factored in a revenue loss of around Rs70 billion for the current fiscal year of 2016/17 owing to the exemptions awarded to China-Pakistan Economic Corridor (CPEC) projects as well as under exports package, officials said on Monday.

The Federal Board of Revenue (FBR) has estimated the cost of tax exemption at around Rs30 billion due to incentives given under the exports package.

In February, government announced Rs180 billion exports package, which includes rebates, tax exemptions and other duty incentives for exporters to help them arrest exports decline. 

Similarly, FBR estimated around Rs30 to 40 billion as cost of exemptions on income tax, sales tax and customs duty given to CPEC-related projects.

Surprisingly, the cost of exemption has been showing a downward trend over the last four years. It amounted to Rs477.1 billion in 2013/14 as compared to Rs412 billion in 2014/15 and Rs394.59 billion in 2015/16.

“Despite our efforts to reduce the quantum of exemptions during the past few years, tax expenditures for the current fiscal year would increase,” said an official. 

The FBR official, however, said the tax exemptions for CPEC-projects are to accelerate the pace of economic growth. 

The official further said such exemptions would have a far-reaching positive impact on the economy by enhancing the availability of electricity, improving infrastructure and augmenting economic activities.  “Economic activities will bring in additional revenue for the FBR in future,” the official said. 

The official said as far as incentives given to exporters are concerned, “there are already several schemes in vogue, but the country’s exporters have failed to take advantage.”

In the current fiscal year, the government also allowed several other incentives, such as re-introducing the zero-rating of sales tax to five export sectors in order to reduce the burden of taxes and ensure availability of liquidity for industrialists. 

Besides, several other exemptions were announced during the current fiscal year for the agriculture sector, which will also increase the size of exemption during the current fiscal year, the official said.

The official said the FBR managed to reduce the cost of exemption, given to export sector under SRO-1125(I)/2011, to Rs43.4 billion for 2015/16 by preventing the misuse of incentives. The amount was Rs65 billion in 2013/14 and Rs55 billion in 2014/15.

The FBR sources said the rising exemption cost would affect the overall revenue collection target of Rs3,621 billion for the current fiscal year.