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June 15, 2021

Federal, provincial and local govts: Cost of exemption on agro income stood at Rs32.6b in 2020-21

ISLAMABAD: The government has informed the parliament that the cost of exemption on agriculture income was estimated at zero amount while its cost on federal, provincial and local governments income stood at Rs32.6 billion. Many parliamentarians belonging to feudal class are sitting in the National Assembly and four provincial assemblies, so they enjoyed exemption on agriculture income.

The details submitted by the government before the parliament stated that Tax Expenditure Report 2021 for federal taxes, based on data pertaining to FY2019- 20, amounted to an estimated Rs1,314.27 billion. Tax expenditure in sales tax amounted the highest at Rs578.46 billion (44pc of the total), while in income tax amounted to Rs448.05 billion (34pc) and in Customs Rs287.77 billion (22pc).

The tax exemption on allowances of salaried class and others stood at Rs37 billion, tax credits Rs105 billion, exemption from total income Rs267 billion, reduction in tax rates Rs124 million, reduction in tax liability Rs2.8 billion, exemption from specific provisions Rs2.7 billion and others/miscellaneous Rs32 billion.

The income tax exemptions are available to tax credit for charitable donations of Rs2.8 billion, tax credit for investment in shares and life insurance Rs2.6 billion, Shaukat Khanum Memorial Trust, Lahore, Rs 1 billion and others.

In the last fiscal year 2019-20, the FBR’s tax collection was Rs3,997.4 billion. Hence, tax expenditure to total collection ratio comes to about 33pc, and tax expenditure to GDP ratio stands at around 3.2pc. The tax expenditure estimates are unadjusted amounts, meaning that elimination or repeal of a specific exemption would not necessarily produce the rupee amounts cited in this report.

Actual receipts would depend on enforcement, taxpayer compliance, effective dates of legislation repealing the exemption, exact wording of any legislation, taxpayer’s behavior and some other economic factors.

This report briefly outlines federal tax exemptions and concessions. These descriptions do not grant rights or impose obligations; rather, the tax laws and rules made thereunder determine actual tax liability. Each estimate is based on the best information available from public and private sources, including the FBR’s database. It would be exceptionally burdensome on taxpayers to require detailed reporting of transactions corresponding to each of the exemption sections and clauses. No such detailed reporting is imposed by statute or rules. Consequently, tax returns do not contain data sufficient to estimate the value of all exemptions and exclusions.