Economic Survey of Pakistan: Exemptions, concessions cause revenue loss of Rs540.9bln in FY18

ISLAMABAD: Tax losses under exemptions and concessions to various sectors of the economy increased sharply by 30 percent during the outgoing fiscal year of 2017/18, the Economic Survey of Pakistan revealed on Thursday.

Total tax exemptions provided to different lobbies and sectors of the economy have caused loss to national exchequer to the tune of Rs 540.9 billion during the fiscal year 2017-18 including Rs 31 billion on all imports from China under Free Trae Agreement (FTA) as well as under China Pakistan Economic Corridor (CPEC).

Tax exemption during the fiscal year of 2016/17 remained at Rs415.751 billion, which translates into an increase of Rs125 billion year-on-year.

Total cost of exemptions granted on imports from China caused accumulative revenue loss of Rs31.822 billion. The cost of exemption of customs duty granted to Chinese imports under CPEC caused revenue loss of Rs397 million in 2017-18.

The customs duty exemption on the imports from China under SRO # 659(I)/2007 led to major revenue loss of Rs31.415 billion in 2017-18 against Rs31.618 billion in 2016-17.

The cost of sales tax exemptions stood at Rs281.05 billion in 2017-18 against Rs250.06 billion in 2016-17, whereas the cost of income tax was Rs61.78 billion against Rs14.005 billion and the cost of customs duty exemptions turned out to be Rs198.15 billion against Rs151.686 in 2016-17.

The Economic Survey also revealed that a revenue loss of Rs17.929 billion was incurred on account of exempt business income granted to independent power producers (IPPs) during 2017-18. In 2016-17, the revenue loss on account of the IPPs stood at Rs50.200 billion against Rs52.030 billion in 2015-16, while revenue loss on account of capital gains decreased from Rs2.5 billion in 2016-17 to Rs1.7 billion in 2017-18.

Sales tax concessions available to the five leading export-oriented sectors i.e. textile, leather, carpets, surgical, and sports goods caused a revenue loss of Rs61.3 billion in 2017-18 against Rs50.4 billion in 2016-17. The total revenue loss from Fifth Schedule of the Sales Tax Act 1990 amounted to Rs28.35 billion during the period under review against Rs26.36 billion in 2016-17, reflecting an increase of Rs1.99 billion. Similarly, imports under the Act caused revenue loss of Rs0.75 billion during 2017-18, whereas the local supplies under the same caused revenue loss of Rs27.6 billion in 2017-18.

The cost of sales tax exemptions has been worked out at Rs281.05 billion for the fiscal year 2017-18. Followings are the main exemptions in sales tax and their cost of exemptions during 2017-18: SRO 1125(I)/2011 relating to concessionary rate of sales tax on raw materials, intermediary inputs and finished goods relating to textiles, carpets, leather, sports, and surgical sectors, caused huge a revenue loss of Rs61.3 billion to the national exchequer. Imports under Fifth Schedule, local supplies under Fifth Schedule, imports under Sixth Schedule led to revenue loss and imports under Eighth Schedule of the Sales Tax Act 1990 also resulted huge revenue loss to the national exchequer.

The cost of income tax exemptions was considerably enhanced from Rs14.005 billion during 2016-17 to Rs61.777 billion in 2017-18. The extension in time limit for availing tax credit for balancing, modernisation, and replacement of plant and machinery under section 65B of the Income Tax Ordinance also spawned revenue loss of Rs 34.714 billion. Tax credit for establishing new industry under section 65D of the Ordinance resulted in revenue loss of Rs3.321 billion. Credit under section 64A of the Income Tax Ordinance, 2001 (regarding interest on the house building) caused revenue loss of Rs10.40 billion, while credit under section 64AB (deductable allowance on educational expenses) also brought about revenue loss of Rs0.057 billion.

The customs duty concessions included imports from China. Customs exemptions are given on raw materials and components, plant, machinery and equipment, imported by the industries particularly exporting sectors. Some of these exemptions are due to international bilateral/multilateral agreements with our trading partners like China, Malaysia, and SARRC countries.

Tax expenditure in respect of customs duty has been estimated at Rs198.151 billion for 2017-18 against Rs151.686 billion, reflecting an increase of Rs46.465 billion.

The concessions under Fifth Schedule of the Customs Act 1969 caused revenue loss of Rs92.408 billion in 2017-18 compared to Rs62.901 billion in 2016-17.

Out of the total cost of exemption of customs duty of Rs198.151 billion for 2017-18, concessions under the Fifth Schedule of the Customs Act 1969 cost Rs92.408 billion in 2017-18 as compared to Rs30.640 billion in 2016-17, reflecting an increase of Rs61.768 billion.

The concession of customs duty on goods imported from SAARC and ECO countries caused revenue loss to the tune of Rs274 million in 2017-18 against Rs73 million in 2016-17. The customs duty exemption on the imports from China under SRO 659(I)/2007 led to a revenue loss of Rs31.415 billion in 2017-18 against Rs31.618 billion in 2016-17 as per Economic Survey.

The customs duty exemption on the imports from Iran under Pak-Iran PTA (preferential trade agreement) caused loss of zero rupees in 2017-18 compared to Rs4 million in 2016-17. The customs duty exemption on the imports under the SAFTA agreement caused revenue loss of Rs1.329 billion in 2017-18.

The customs duty exemption on the imports from Malaysia caused revenue loss of Rs 2.674 billion in 2017-18 against Rs 1.983 billion in 2016-17.

The exemption of duty on the imports from Sri Lanka resulted in a revenue loss of Rs2.802 billion in 2017-28 compared to a revenue loss of Rs2.538 billion in 2016-17, while same exemption on imports from Mauritius caused a loss of Rs15 million in 2017-18 against Rs27 million in 2016-17.

The exemption of customs duty for original equipment manufacturer (OEMs) of automotive sector drove a revenue loss of Rs35.030 billion in 2017-18 compared to Rs21.827 billion in 2016-17, reflecting an increase of Rs 13.023 billion. The exemption of customs duty on the import of cotton was Rs1.496 billion in 2017-18.