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June 11, 2021

Cost of exemptions increases Rs164bln in FY2021

ISLAMABAD: The cost of total tax exemptions has gone up by Rs164.3 billion in outgoing fiscal year as Rs1.3 trillion was provided on this account compared to Rs1.1 trillion a year earlier, according to Pakistan Economic Survey.

The survey did not present the cost of tax exemption granted to independent power producers and revenue loss from capital gains tax.

The economic survey 2020-21 launched by Minister for Finance Shaukat Tarin on Thursday showed that the cost of income tax exemptions stood at Rs448 billion, sales tax Rs578 billion and customs duty Rs287 billion. The total cost of exemptions provided to different sectors in shape of income tax, sales tax and customs duty ballooned to Rs1.3 trillion.

The cost of income tax exemptions was considerably enhanced from Rs378 billion in 2019-20 to Rs448 billion in 2020-21.

The cost of allowances stood at Rs37.3 billion, tax credit Rs105 billion, exemption from total income Rs267 billion, reduction in tax liability Rs124 million, exemptions from specific provision Rs2.6 billion and other miscellaneous Rs32.6 billion. The revenue loss due to exemption to export of IT services during 2020-21 has not been mentioned in the survey.

The cost of sales tax exemptions increased Rs59.6 billion; income tax exemptions increased Rs70 billion and cost of customs duty exemptions stood at Rs287 billion in 2020-21 as against Rs253 billion in 2019-20, reflecting an increase of Rs34.66 billion.

The FBR has suffered massive revenue loss of Rs329 billion in 2020-21 due to sales tax exemptions available under the sixth schedule (exemption schedule) of the Sales Tax Act. Last year, the revenue loss was Rs301 billion which increased to Rs329 on account of sales tax exemptions.

The FBR suffered a loss of around Rs208 billion due to sales tax exemptions available under the eight schedule (conditional exemption) of the Sales Tax Act, 1990, during the period of 2020-21 against Rs118 billion in 2019-20. The revenue loss from conditional exemptions has been increased by Rs90 billion.

The exemption of sales tax on

cellular mobile phones under ninth schedule of the Sales Tax Act, 1990, resulted in a revenue loss of Rs27 billion during 2020-21 against Rs23 billion in 2019-20, reflecting an increase of Rs 3.9 billion.

The total revenue loss from zero-rating facility granted to various sectors under fifth schedule of the Sales Tax Act, 1990, amounted to Rs12.8 billion during the period under review against Rs13.6 billion in 2019-20, reflecting a negative growth of Rs0.7 billion.

The FBR has not specified any revenue loss to the exemptions within the federal excise regime, reflecting no loss occurred on this account.

The cost of exemptions in respect of customs duty has been calculated at Rs287 billion for 2020-21 against Rs253.111 billion for 2019-20, reflecting an increase of Rs34.66 billion.

The exemption of customs duty available under Chapter-99 (special classification provisions) of the Customs Act has caused a revenue loss of Rs12.645 billion during 2020-21.

The concessions under Fifth Schedule of the Customs Act, 1969 caused revenue loss of Rs137 billion in 2020-21 as compared to Rs87 billion in 2019-20, reflecting an increase of Rs49 billion.

The FBR has suffered a massive revenue loss of Rs34.2 billion on account of tariff concessions and exemptions available under the free trade agreements and the preferential trade agreements during 2020-21.

Similarly, exemption of customs duty on the items by automobile sector, exploration and production companies and China-Pakistan Economic Corridor caused a loss of Rs55.8 billion during 2020-21. The export related exemptions cost revenue loss of Rs47.6 billion during 2020-21.