Power generation projects: IT exemption on profits, gains causes Rs47bn loss

ISLAMABAD: The income tax exemption on the profits and gains of power generation projects set up in Pakistan has caused revenue loss of Rs 47 billion during 2019-20.

According to the FBR’s Expenditure report (2021) released here on Sunday, the income tax exemption available to the exporters of computer software, IT services or IT enabled services from the income from exports of computer software or IT services or IT enabled services has caused revenue loss of Rs1.944 billion.

The reduced rate of sales tax on all types of fertilizers caused revenue loss of Rs73.968 billion; pesticides and their active ingredients Rs 18.108 billion; milk Rs 17 billion and sales tax exemption available to drugs/medicaments has revenue impact of Rs 91.892 billion.

The exemption of customs duties on the imports made under the Free Trade Agreement (FTAs) and Preferential Trade Agreements (PTAs) caused revenue loss of Rs 34.210 billion in 2019-20.

The Federal Board of Revenue’s (FBR) Tax Expenditure Report 2021 for federal taxes is based on data pertaining to 2019-20, amounted to an estimated Rs. 1,314.27 billion. Tax expenditure in sales tax amounted highest at Rs. 578.46 billion (44 percent of the total), while in income tax amounted to Rs. 448.05 billion (34percent), and in Customs, to Rs. 287.77 billion (22percent). In the last fiscal year 2019-20, FBR’s tax collection was Rs. 3,997.4 billion. Hence, tax expenditure to total collection ratio comes to about 33 percent, and tax expenditure to GDP ratio stands at around 3.2 percent.

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 behaviour, and some other economic factors. The tax returns do not contain data sufficient to estimate the value of all exemptions and exclusions. Estimation requires identification of pertinent, useful data available from various external sources. Where exemptions identified in tables have not been estimated, it is because requisite data does not exist or have not been identified and acquired from an external source, FBR said.

The report revealed that the FBR has suffered revenue loss of Rs 37.318 billion last fiscal year due to exemption granted under the head of ‘allowances” including new business entities and persons paying Workers’ Welfare Fund/Zapata/Workers’ Participation Fund.

The exemption granted to the new business entities caused revenue loss of over Rs 30 billion.

The revenue impact is Rs6.686 billion from exemption available to the employees (recipient of payments from provident funds) on account of payments from a provident fund. The Employees Old Age Benefits Institution has revenue impact of Rs 5.465 billion during this period.

The income tax exemption available to the pensioners of retired government employees/servants and military personnel has a revenue impact of over Rs13 billion during 2019-20.

The tax credit available to the corporate manufacturing sector for non-equity investment in plant & machinery causes revenue loss of Rs 51.408 billion.

Tax credit for non-profit organizations, trusts or welfare institutions has a revenue impact of Rs18.482 billion.

Tax credit available to persons giving charitable donations has a revenue impact of Rs2.869 billion whereas the tax credit for investment in shares and life insurance Persons (excluding companies) investing in shares, sucks, or life insurance has a revenue impact of Rs2.222 billion.

Within the category of exemption from total income, pensions granted to the retired government servants & military personnel have caused loss of over Rs 13 billion.

The income tax exemption available to the trustees of recognized provident funds, approved superannuation funds, and approved gratuity funds has revenue impact of Rs 13 billion.

The exemption available to the State Bank of Pakistan and SBP Banking Services Corporation has a revenue impact of Rs 48 billion.

The tax exemption available to the Pakistan Water and Power Development Authority had caused revenue loss of Rs 19.496 billion.

The corporative entities of Pakistan Water and Power Development Authority have caused revenue loss of Rs 5 billion on account of income tax exemption.

The exemption on any income derived by Suck holder in relation to Sukuk issued by “The Second Pakistan International Suck Company Limited” and the Third Pakistan International Sukuk Company Limited, including any gain on disposal of such Sukuk has impact of Rs 3.436 billion.

There is a revenue impact of over Rs 7 billion on account of exemption available to any income of an agency of a foreign government, a foreign national (company, firm or association of persons), or any other Non-resident person approved by the federal government for the purposes of this clause, from profit on moneys borrowed under a loan agreement or in respect of foreign currency instrument approved by the federal government.

The income tax exemption available to the Collective Investment Schemes or a REIT Schemes Collective Investment Schemes and REIT Schemes that are distributing more than 90% of their incomes to certificate holders / shareholders has caused revenue loss of Rs 16 billion.

The income tax exemption available to the public sector universities has revenue impact of Rs 10.715 billion.

The income tax exemption available to the oil refineries under section 126B has a revenue impact of Rs1.724 billion.

The income tax exemption for the electric power generation projects on the profits and gains derived by a taxpayer from an electric power generation project set up in Pakistan has revenue implications of Rs 47 billion.

The exemption on the income from social security contributions derived by the four provincial Social Security institutions caused revenue loss of Rs 5.636 billion.

The income tax exemption available to the individuals domiciled or companies and associations of persons resident in the erstwhile Tribal Areas caused revenue loss of Rs 4.460 billion.

The exemption granted to LNG Terminal Operators and Terminal Owners on the profit and gains has revenue impact of Rs 1.714 billion, FBR added.

Copyright Business Recorder, 2021