The actual cost of total sales tax exemptions annually is around Rs 100 billion and not Rs 27.409 billion as has been mentioned in the Economic Survey (2009-10), which reflects revenue implications of a few sectors of the national economy.
A senior government official told Business Recorder here on Tuesday that the Federal Board of Revenue (FBR) for the first time worked out the actual cost of sales tax exemptions given under the Sixth Schedule of the Sales Tax Act 1990 and exemption/concessionary notifications issued from time to time.
Total cost of exemptions was figured out during the exercise of introducing VAT in recent past. On the other hand, the Economic Survey (2009-10) has disclosed Rs 27.409 billion as cost of sales tax exemptions and concessions to specific sectors. The data of Economic Survey merely gives a rough idea about the cost of sales tax exemptions given to selected sectors. Therefore, the cost of sales tax exemption mentioned in Economic Survey (2009-10) could not be considered as total revenue loss on account of GST exemptions/concessions to eligible sectors and investors.
For example, major sales tax exemptions are on pharmaceutical products, tractors and other agricultural machinery. The revenue loss on account of exemption to pharmaceutical products is Rs 3.754 billion in 2009-10 against Rs 3.1 billion in the same period last fiscal. Exemptions to tractors caused a loss of Rs 6.246 billion against Rs 5.7 billion; fertilisers, Rs 8.797 billion against Rs 8.20 billion and exemptions to items falling within the category of ''others'' caused a loss of Rs 8.612 billion in 2009-10 against Rs 0.50 billion in 2008-09, according to Economic Survey (2009-10).
The accumulated affect of these selected exemptions comes to around Rs 27.409 billion in 2009-10. This is the main reason that the actual cost of sales tax exemption is much higher as compared to the figure mentioned in the Economic Survey (2009-10). According to an FBR report, the board has worked out Rs 200 billion as estimated cost of all tax exemptions including sales tax, which comes to 3 percent of the gross domestic product (GDP), it added.
During drafting the Federal and Provincial VAT laws, the FBR had estimated to collect an amount of Rs 125 billion during the first year of Value Added tax (VAT) implementation. It was calculated that the revenue loss during transition of sales tax to the VAT would be offset due to gains during implementation of the VAT. During this process of loss and gain in the first year, the net gain would be around Rs 125 billion following implementation of VAT. It was further observed that transition phase of VAT enforcement would result in revenue loss which would be compensated by the withdrawal of exemptions, special procedures and zero-rating facility.
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