Tax exemptions cost govt over Rs1.757trn

ISLAMABAD: The total tax exemptions, concessions and special tax treatments to various businesses, sectors/industries, lobbies/ groups and investors have cost the government Rs1,757.035 billion during the fiscal year 2021-22 against Rs1,314.3 billion in 2020-21, reflecting an increase of Rs442.735 billion.

The cost of tax exemptions registered a growth of 33.7 percent during 2021-22 as compared to tax expenditure in 2020-21.

The Economic Survey 2021-22 released here on Thursday disclosed that the single-largest contributor to the surge in sales tax exemptions was the exemption from sales tax on imports, showing a massive revenue loss of Rs527 billion during 2021-22. Sales tax exemption on local supplies caused a revenue loss of Rs233.541 billion against Rs156.134 billion, reflecting an increase of 50 percent.

This has been followed by a revenue loss of Rs232.852 billion from exemption from total income during 2021-22.

The Finance (Supplementary) Act, 2022 has withdrawn sales tax exemptions to the tune of Rs343 billion from January 16, 2022. However, the cost of sales tax exemptions has considerably increased to Rs1,014.482 billion in 2021-22 against Rs578.456 billion in 2020-21, reflecting an increase of Rs436.027 billion (75 percent).

Export industry: Raw materials now exempt from taxes

The cost of income tax exemptions amounted to Rs399.662 billion against Rs448.046 billion, showing a decrease of Rs48.424 billion (-11 percent)and the cost of customs duty exemptions was Rs342.890 billion in 2021-22 against Rs287.771 billion in 2020-21, reflecting an increase of Rs55.119billion (19 percent).

Within the category of direct taxes, the cost of income tax exemption has decreased by 11 percent in 2021-22, when compared with the previous year.

The Economic Survey has not mentioned revenue loss on account of exempt business income granted to independent power producers (IPPs).

Similarly, the survey has not mentioned any revenue loss from capital gains.

The accumulative revenue loss on account of tax credits amounted to Rs65.465 billion in 2021-22 against Rs105.342 billion in 2020-21, showing a decrease of 38 percent. There is a significant decrease in the cost of income tax exemption on account of tax credits to the tune of Rs39.877billion in 2021-22.

This year, the government has not specified details of revenue loss on account of tax credits for charitable donations, tax credit under Section 100C, and revenue loss on account of tax credit for investment in shares and insurance under Section 62 of the Income Tax Ordinance.

The FBR has suffered a massive revenue loss of Rs760.543 billion in 2021-22 due to sales tax exemptions available under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act. Last year, the revenue loss was Rs329.942billion in 2020-21 which increased to Rs760.543 billion on account of sales tax exemptions.

The FBR has suffered a loss of around Rs191billion due to sales tax exemptions available under the Eight schedule (Conditional Exemption) of the Sales Tax Act, 1990, during the period of 2021-22 against Rs208 billion in 2020-21. The revenue loss from conditional exemptions has been decreased by Rs17 billion.

The exemption of sales tax on cellular mobile phones under the Ninth Schedule of the Sales Tax Act, 1990, resulted in a revenue loss of Rs49.891 billion during 2021-22 against Rs27.096 billion during 2020-21, reflecting an increase of 84 percent.

The total revenue loss from the zero-rating facility granted to various sectors under the Fifth Schedule of the Sales Tax Act, 1990, amounted to Rs11.367billion during the period under review against Rs12.887 billionin 2020-21, reflecting a negative growth of 12 percent.

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 income tax exemptions was decreased from Rs448.046billion in 2020-21 to Rs399.662 billion in 2021-22, showing a decrease of 11 percent.

The cost of exemptions in respect of customs duty has been calculated at Rs342.890 billion for 2021-22 against Rs287.771 billion for 2020-21, reflecting an increase of 19 percent.

The exemption of customs duty available under Chapter-99 (special classification provisions) of the Customs Act has caused a revenue loss of Rs15.963 billion during 2021-22 against Rs12.645 billion in 2020-21, reflecting an increase of 26 percent.

The concessions under the Fifth Schedule of the Customs Act, 1969 caused a revenue loss of Rs168.754 billion in 2021-22 as compared to Rs137.418 billion in 2020-21, reflecting an increase of 23 percent.

The FBR has suffered a massive revenue loss of Rs46.105 billion during 2021-22 against Rs34.210 billion in 2020-21 on account of tariff concessions and exemptions available under Free Trade Agreements (FTAs) and the Preferential Trade Agreements (PTAs).

Similarly, exemption of customs duty on the items by automobile sector, exploration and production (E&P) companies and the CPEC caused a loss of Rs60.987 billion in 2021-22 against Rs55.877 billion during 2020-21, showing an increase of nine percent.

The export-related exemptions cost revenue loss of Rs51.081 billion during 2021-22 against Rs47.631 billion during 2020-21, reflecting an increase of seven percent.

Copyright Business Recorder, 2022