Tax exemptions cost exchequer over Rs2.23trn

ISLAMABAD: Total tax exemptions, concessions and special tax treatments to various businesses, sectors/ industries, lobbies/groups and investors have cost the government Rs2,239.6 billion in 2022-23 against Rs1,757.035 billion during the fiscal year 2021-22, reflecting an increase of Rs482 billion.

The cost of tax exemptions registered a growth of 27.43 per cent during 2022-23 as compared to tax expenditure in 2021-22.

Out of the total cost of exemptions of Rs2,239.6 billion in 2022-23, sales tax exemptions on local supplies and imports have caused a massive revenue loss of Rs1,294 billion during the current fiscal year. The FBR has suffered a revenue loss of Rs578 billion in 2021-22. The data reflected that the cost of sales tax exemption has considerably increased by Rs716 billion.

The Economic Survey 2022-23 released here on Thursday disclosed that the single-largest contributor to the surge in sales tax exemptions was the exemption from sales tax on petroleum products through statutory regulatory orders (SROs), showing a massive revenue loss of Rs632,950 billion during 2022-23.

FBR sees Rs1289bn tax gap for 2022

The survey disclosed an interesting figure that the sales tax exemption on cellular mobile phones caused a revenue loss of Rs1,021 million in 2022-23 as compared to Rs45.9 billion during 2021-22. The Federal Board of Revenue (FBR) has suffered a revenue loss of Rs257 billion on account of sales tax exemption on imports during 2022-23 as compared to Rs527 billion during 2021-22. The cost of sales tax exemption has been reduced by Rs270 billion in 2022-23 which is a big reduction in the cost of exemption during the period under review.

Sales tax exemption on local supplies caused a revenue loss of Rs133,178 billion in 2022-23 as compared to Rs233.541 billion in 2021-22, reflecting an increase of over Rs100 billion.

The cost of income tax exemptions amounted to Rs423.9 billion against Rs399.662 billion, showing an increase of Rs24.238 billion and the cost of customs duty exemptions was Rs521.7 billion in 2022-23 against Rs342.890 billion in 2021-22, reflecting an increase of Rs178.81 billion.

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 Rs52.133 billion in 2022-23 against Rs65.465 billion in 2021-22, showing a decrease of Rs13.332 billion. The FBR has suffered a massive revenue loss of Rs390 billion in 2022-23 as compared to Rs760.543 billion in 2021-22 due to sales tax exemptions available under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act.

The FBR has suffered a loss of Rs129.906 billion due to sales tax exemptions available under the Eight schedule (Conditional Exemption) of the Sales Tax Act, 1990, during the period of 2022-23 against Rs191billion in 2021-22. The revenue loss from conditional exemptions has been decreased by Rs62 billion.

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 Rs139.448 billion during the period under review against Rs33billion in 2021-22, reflecting an increase of Rs106 billion.

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 increased from Rs399.662 billion in 2021-22 to Rs423.894 billion in 2022-23, reflecting an increase of Rs24 billion. The cost of exemptions in respect of customs duty has been calculated at Rs521.7 billion in 2022-23 as compared to Rs342.890 billion for 2021-22, reflecting an increase of Rs178.81 billion.

The exemption of customs duty available under Chapter-99 (special classification provisions) of the Customs Act has caused a revenue loss of Rs22.240 billion in 2022-23 against Rs15.963 billion during 2021-22, reflecting an increase of Rs6.277 billion.

The concessions under the Fifth Schedule of the Customs Act, 1969 caused a revenue loss of Rs172.978 billion in 2022-23 against Rs168.754 billion in 2021-22, reflecting an increase of Rs4.224 billion.

The FBR has suffered a massive revenue loss of Rs102.658 billion in 2022-23 against Rs46.105 billion during 2021-22 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 the automobile sector, exploration and production (E&P) companies and the CPEC caused a loss of Rs192.950 billion in 2022-23 against Rs60.987 billion in 2021-22, showing an increase of Rs131.963 billion. The export-related exemptions cost revenue loss of Rs30.878 billion during 2022-23 against Rs51.081 billion during 2021-22, reflecting a decrease of Rs20 billion.

Copyright Business Recorder, 2023