ISLAMABAD: The Federal Board of Revenue (FBR) on Friday released the Tax Expenditure Report 2022, revealing that the total federal taxes’ expenditure based on the data relating to FY 2020-21 is estimated at Rs1,482.3 billion.

The major part of the tax expenditure in Income Tax is in the form of exemptions from total income and special provisions; profits and gains from power generation projects (Rs37 billion), the income of Collective Investment Scheme or a REIT Scheme (Rs26 billion), tax credit (Rs65 billion), pension (Rs16 billion), provident funds (Rs14 billion) are the major heads of tax expenditure in Income Tax.

The FBR released the Tax Expenditure Report 2022 along with the Finance Bill 2022 on Friday.

In sales tax, approximately 44 percent of the tax expenditure is at the import stage under the sixth schedule of the Sales Tax Act (STA) 1990. Around 26 per cent tax expenditure in sales tax is in the form of reduced rates under the 8th schedule of the STA 1990.

Tax expenditure under Customs Duty is estimated to be around Rs343 billion which is largely granted under the Fifth Schedule and Chapter 99 of Customs Act, 1969.

The total federal taxes’ expenditure based on the data relating to FY2020- 21 is estimated at Rs1,482.3 billion.

The total expenditures are 31.2 per cent of total collection in FY 2020-21.

Income Tax: Rs.399.7 billion (27.0per cent of total expenditure and 0.7per cent of GDP in FY2020-21).

Sales Tax: Rs739.8 billion (49.9per cent of total expenditure and 1.3per cent of GDP in FY2020-21).

Customs Duty: Rs342.8 billion (23.1per cent of total expenditure and 0.6per cent of GDP in FY2020-21).

The tax revenue foregone constitutes approximately 2.67per cent of total GDP in FY2020-21 and 2.8% in FY 2019-20.

Tax expenditures are classified according to the type of tax measure, i.e., allowances, credits, exemptions, reduced rates, etc.

Overall income tax expenditure accounted for 27.0% of the total expenditure in FY2021-22. The larger share of exemptions was received in the form of exemptions from total income taxes, and exemptions from specific provisions and allowances.

The tax expenditures estimation for FY2021-22 includes the tax expenditures under Clause 56, Part IV of Second Schedule for Income Tax. This tax expenditure was not part of the previous reports.

The inclusion of exemption from specific provisions at import stage increases the total expenditure in income tax by Rs46.7 billion which is 2% of total tax expenditure.

This revenue foregone in income tax constitutes approximately 0.7% of GDP in the FY2021-22.

The tax expenditure in sales tax is 49.9% of the total expenditure in Y2021-22. The larger share of exemptions is granted at the import stage which is nearly44% of the total sales tax expenditure.

The tax expenditure in sales tax increased by 27.9% compared to that in the preceding year. Several factors played a role in the surge of sales tax expenditure, the report added.

Copyright Business Recorder, 2022