The government suffered a loss of Rs 19.61 billion on account of tax exemptions given to various sectors during 2003-04, against Rs 23.29 billion in 2002-03.
The analysis shows that the cost of sales tax exemption was Rs 9.25 billion in 2003-04, against Rs 10.39 billion in 2002-03; for income tax Rs 6.15 billion against Rs 6.80 billion; custom duty Rs 4.21 billion against Rs 5.60 billion; and the cost of exemption of central excise was Rs 0.002 billion in 2003-04 against Rs 0.50 in 2002-03.
During 2004, the exemption to pharmaceutical industry caused a loss of Rs 4.60 billion; reduction in NSS interest income Rs 2 billion; general conditional exemption of custom duty was Rs 2 billion; on tractors and other agriculture machinery Rs 1.75 billion; on import of machinery and equipment Rs 1.23 billion; on allowances Rs 1.10 billion; on capital gains Rs 0.95 billion; on edible oil Rs 0.85 billion and tax exemption to pensions resulted in loss of Rs 0.70 billion.
Five custom SROs caused a loss of Rs 4.211 billion in 2003-04 against Rs 5.603 billion in 2002-03.
The break-up shows that exemption of custom duty in excess of 10 percent ad valorem on machinery, equipment materials etc import for the project of petroleum sector ( SRO.387(I)/94) caused a loss of Rs 1.225 billion in 2003-04; conditional exemption of customs duty on machinery/equipment and construction materials for power generation (SRO 438(1)/2001) Rs 128 million; conditional exemption of duty on import of plant/machinery not manufactured locally for export industries, hi-tech industries (SRO.439(1)/2001) Rs 0.511 billion; partial exemption of customs duty on raw materials sub-components and components of specific not manufactured locally (SRO. 357 (1)/2002) Rs 0.338 billion and general conditional exemption of customs duty caused revenue loss of Rs 2.011 billion under SRO. 358 (1)/2002.
The income tax exemption to pensions resulted in loss of Rs 0.70 billion in 2003-04; allowances Rs 1.10 billion; income from fund (NIT Units) Rs 0.60 billion; NSS interest income Rs 2 billion; other income interest Rs 0.10 billion; capital gains Rs 0.95 billion and sector and enterprise specific exemption caused a loss of Rs 0.70 billion.
Key sales tax exemptions were on food items (wheat, grain, pulses, and edible oils excluding palm oil and soybean oil). In addition to food items, the exemptions also applied to phosphatic fertiliser, information technology equipment, and pharmaceutical products. As per international practices, the bulk of such items cannot be taxed; for example, food grains etc. The cost of sales tax exemption is Rs 9.25 billion for 2003-04.
On the income tax side, the exemption expenditure mainly relates to National Saving Schemes, pensions, provident funds and superannuation funds.
Moreover, exemptions related to charitable activities and non-profit educational institutes are common in both developed and developing countries. The position with regard to the basic threshold of income for charging taxes is similar.
Tax expenditure on account of central excise is minimal compared to other taxes being administered by CBR. The cost of CED exemptions in 2003-04 was around Rs 2.25 million.
This exemption was granted to the Aga Khan Development Network for the Aga Khan Hospital and Medical College, Karachi, on the purchase of cement for construction of the oncology block and laboratory building.
Customs exemptions are mainly given on raw materials and components, plant, machinery and equipment imported by the high-tech sector, priority and value-added industries, imports for energy sector projects, exploration and production companies including OGDC, equipment for Wapda; and imports by CNG companies. Some of these exemptions were due to international contractual obligations.
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