Tax exemptions to various sectors have cost the government Rs 21.91 billion during 2005-06, against Rs 24.87 billion in 2004-05, reflecting a decrease of 11.9 percent.
The Economic Survey 2005-06 shows that the cost of sales tax exemption was Rs 8.65 billion in 2005-06, against Rs 7.85 billion during 2004-05 (10.7 percent increase); income tax Rs 4.65 billion against Rs 4.60 billion (1.1 percent increase); custom duty Rs 8.21 billion against Rs 12.40 billion (33.8 percent decrease) and the cost of central excise exemption was Rs 0.40 billion in 2005-2006 against Rs 0.02 billion during the corresponding period of last fiscal year.
During 2005-06, the exemption to pharmaceutical industry (excluding life saving drugs) caused a loss of Rs 4.80 billion; general conditional exemption Rs 6.2 billion; tractors and other agriculture machinery Rs 1.75 billion; import of machinery/equipment Rs 0.5 billion; allowances Rs 1.15 billion; capital gains, Rs 0.95 billion; pensions, Rs 0.70 billion; sector and enterprise specific exemptions, Rs 0.75 billion and estimated revenue loss was Rs 2 billion following exemption on fertilisers.
Seven customs notifications caused a cumulative loss of Rs 8,210 million in 2005-2006 against Rs 12,384 million in 2004-2005.
The income tax exemption to pensioners cost Rs 0.70 billion in 2005-2006; allowances Rs 1.15 billion; income from fund (NIT Units), Rs 0.60 billion; NSS interest income, Rs 0.45 billion; other income interest, Rs 0.05 billion; capital gains, Rs 0.95 billion and sector and enterprise specific exemption caused a loss of Rs 0.75 billion.
Key sales tax exemptions were agriculture products, pharmaceutical items, pulses and information technology. Sales tax exemption given on fertilisers resulted in loss of Rs 2 billion during 2005-06 against Rs 0.69 billion in the same period last fiscal.
Total number of income tax exemptions was 100, whereas cost of these exemptions was Rs 4.65 billion during the period under review. The exemption expenditure mainly relates to pensions, provident funds and superannuation funds. Other categories of exemption included interest on borrowing from external sources.
Moreover, exemptions related to non-profit charitable, religious and welfare activities and non-profit educational institutions. The exemption also related to the power generation and unexplained period to tax holidays for industrial undertaking.
The major exemption in federal excise is data communication including the internet services. There are few other conditional excise exemptions mostly related to supplies of excisable products such as tobacco, POL products, supplies to the armed forces and UN agencies. The cost of excise exemption is around Rs 400 million.
Customs exemptions are given on raw materials and components; plant, machinery and equipment imported by the high-tech, priority and value added industries; imports for energy sector projects and exemption to exploration and production companies. Some of these exemptions are due to international contractual obligations.
The concessional rate of customs duty on the import of goods from South Asian Association of Regional Countries (Saarc) and ECO countries has cost Rs 217 million in 2005-2006 against Rs 222 million in the same period last fiscal.
Similarly, the concession of customs duty and sales tax on the import of machinery by the Exploration and Production (E&P) companies (SRO 678(I)/2004) caused a loss of Rs 1,380 million against Rs 1,019 million.
The concession of customs duty on import of plant, machinery and equipment by the manufacturing industry, tourism related projects, hotels and relocated industrial plants resulted in revenue loss of Rs 5 million in 2005-06 against Rs 1,976 million in 2004-05.
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