Following withdrawal of concessionary/exemption Statutory Regulatory Orders (SROs) of Rs 132 billion in 2015-16, total tax exemptions and concessions to various sectors, lobbies/groups and investors have cost the government Rs 394.593 billion during 2015-2016 against Rs 665 billion in 2014-15, reflecting a decrease of Rs 270.407 billion.
The Economic Survey (2015-16) released on Thursday revealed that the tax expenditure for 2015-2016 has been worked out at Rs 394.593 billion. Overall, there is a decrease in the cost of tax exemptions and concessions in 2015-16 against same period of 2014-15 due to withdrawal of concessions and exemptions granted through SROs of Rs 132 billion. The cost of tax exemptions of sales tax, income tax and customs duty has been decreased by Rs 270.407 billion in 2015-16 when compared with 2014-15. The cost of sales tax exemptions totalled at Rs 207.3 billion in 2015-2016 against Rs 103 billion in 2014-15; income tax, Rs 67.3 billion against Rs 83.6 billion and cost of custom duty exemptions was Rs 119.993 billion against Rs 665 billion in 2014-15. The cost of customs duty exemptions remained highest among all federal taxes during the period under review.
The Economic Survey disclosed that the FBR suffered massive revenue loss of Rs 128.9 due to sales tax exemptions available under Sixth Schedule (Exemption Schedule) of the Sales Tax Act. Last year, the cost of exemptions under Sixth Schedule amounted to Rs 286 billion. In 2015-16, huge revenue loss of Rs 128.9 billion under Sixth Schedule revealed that most of the sales tax exemptions are available under a single schedule of Sales Tax Act. The revenue loss due to sales tax exemptions available at the import stage under Sixth Schedule of the Sales Tax Act caused loss of Rs 51.6 billion during this period. The revenue loss on account of sales tax exemptions available on local supplies under Sixth Schedule of the Sales Tax Act caused loss of Rs 77.3 billion during this period.
On the customs side, the general concessions of automobile sector, E&P, textile, energy and others caused revenue loss of Rs 81 billion in 2015-16.
Sales tax concessions available to the five leading export oriented sectors ie textile, leather, carpets, surgical and sports goods caused revenue loss of Rs 43.4 billion in 2015-16 against Rs 55 billion in 2014-15, reflecting a decrease of Rs 11.6 billion. The concessions under Fifth Schedule of the Customs Act 1969 cause revenue loss of Rs 30.640 billion to the national exchequer. The exemption of customs duty on the imports from China under different notifications caused accumulative revenue loss of Rs 30.577 billion during 2015-16 against Rs 26.603 billion loss in 2014-15. The exemption from customs duty for OEMs of automotive sector caused huge revenue loss of Rs 22.453 billion. The income tax exemption granted to the Independent Power Producers caused revenue loss Rs 50.200 billion in 2015-16 against Rs 52.030 billion in 2014-15.
The FBR has not specified any revenue loss to the exemptions within the federal excise regime, reflecting no loss occurred on this account.
On the direct taxes side, the revenue loss on account of capital gains has decreased from 2.500 billion in 2014-15 to Rs 1.700 billion in 2015-16.
The cost of sales tax exemptions has been worked out and is estimated to be Rs 207.3 billion for the fiscal year 2015-16. Followings are the main exemptions in sales tax and their cost of exemptions during 2015-2016: SRO.1125(I)/2011 relating to concessionary rate of sales tax on raw materials, intermediary inputs and finished goods relating to textiles, carpets, leather, sports and surgical sectors, caused huge revenue loss of Rs 43.4 billion to the national exchequer. Imports under Fifth Schedule excluding import of crude oil caused revenue loss of Rs 1.8 billion. Local supplies under Fifth Schedule caused revenue loss of Rs 21.8 billion. Imports under Sixth Schedule caused revenue loss of Rs 51.6 billion. The imports under Eighth Schedule of the Sales Tax Act 1990 caused revenue loss of Rs 11.4 billion.
The cost of income tax exemptions decreased to Rs 67.3 billion in 2015-2016 against Rs 83.600 billion in 2014-15, reflecting a decline of Rs 16.3 billion. The cost of income tax exemptions was Rs 96.634 billion in 2013-14.
Major income tax exemptions included exemptions related to pensions/gratuity; income from funds, board of education, universities and computer training institutions; donations and contributions to charitable organisations; Independent Power Producers; income from certain trust, welfare and charitable institutions non-profit organisations; profits on debt/interest from government securities and certain foreign currency accounts/books profit on debt; export of Information Technology; capital gains and other sector and enterprise specific exemption.
The income tax exemption to pensions and gratuity cost Rs 1.100 billion in 2015-16 against same amount during 2014-15; income from funds, board of education, universities and computer training institutions Rs 5.500 billion against Rs 10.500 billion; donations and contributions to charitable organisations Rs 1.400 billion against Rs 2.600 billion; income from certain trusts, welfare and charitable institutions and non-profit organisations Rs 0.300 billion against Rs 0.900 billion; profits on debt/interest from government securities and certain foreign currency accounts/books/profits on debt Rs 1.800 billion against Rs 3.900 billion; export of Information Technology Rs 0.800 billion against Rs 1.100 billion and other sector and enterprise specific exemption caused revenue loss of Rs 4.500 billion in 2015-16 against Rs 9.500 billion in 2014-15.
Customs exemptions are given on raw materials and components; plant, machinery and equipment imported by the industries particularly export oriented sectors. Some of these exemptions are due to international bilateral/multilateral agreements with out trading partners like China, Malaysia and SARRC countries.
Tax expenditure in respect of Customs Duty has been estimated at Rs 119.993 billion for 2015-16 against Rs 103.046 billion, reflecting an increase of Rs 16.947 billion.
Out of total cost of exemption of customs duty of Rs 119.993 billion for 2015-16, concessions under the Fifth Schedule of the Customs Act 1969 cost Rs 30.640 billion to the national kitty.
The concession of customs duty on goods imported from SAARC and ECO countries caused revenue losses to the tune of Rs 247 million in 2015-16 against Rs 352 million in 2014-15. The customs duty exemption on the imports from China under SRO.659(I)/2007 caused revenue loss of Rs 30.577 billion as per Economic Survey.
The customs duty exemption on the imports from Iran under Pak-Iran PTA caused loss of Rs 4 million. The customs duty exemption on the imports under the SAFTA agreement caused revenue loss of Rs 1.096 billion during 2015-2016. The exemption of customs duty on the imports from China under another SRO.659(I)/2007 resulted in revenue loss of Rs 30.577 billion in 2015-16 against Rs 26.603 billion in 2014-15. The customs duty exemption on the imports from Malaysia caused revenue loss of Rs 1.674 billion in 2015-16. The exemption from customs duty on imports from Indonesia under the Pak-Indonesia PTA caused revenue loss of Rs 3.932 billion in 2015-16 against Rs 3.183 billion in 2014-15. Exemption of duty on the imports made from Sri Lanka caused revenue loss of Rs 1.227 billion. Exemption of duty on imports from Mauritius caused loss of Rs 19 million.
The conditional exemption of customs duty on import of raw materials and components etc for manufacture of different sectors under SRO.565(I)/2006 resulted in revenue loss of Rs 2.002 billion in 2015-16 against Rs 3.752 billion during the corresponding period last fiscal.
Similarly, exemption of customs duty and sales tax on the import of machinery, equipment and vehicles by the Exploration and Production (E&P) companies (SRO.678(I)/2004) caused a loss of Rs 5.081 billion against Rs 13.204 billion in the same period last fiscal, reflecting a decrease of Rs 13.204 billion.
The exemption of customs duty for vendors of automotive sector caused revenue loss of Rs 19.532 billion in 2015-16 against Rs 16.281 billion in the corresponding period of last fiscal.
The exemption of customs duty for OEMs of automotive sector caused revenue loss of Rs 22.453 billion in 2015-16 against Rs 18.394 billion in 2014-15.
The exemption of customs duty on the import of machinery and equipment by industrial units registered with the Ministry of Textile Industry caused revenue loss of Rs 1.510 billion during 2015-16 against Rs 1.475 billion in 2014-15.
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