ISLAMABAD: The one-year extension in exemption from duties and taxes for the erstwhile tribal areas would cause a huge revenue loss of approximately Rs 45 billion in 2023-24.

Tax experts told Business Recorder that the exemption of nearly Rs 45 billion has been allowed for another fiscal year despite commitment with the donor agencies that any new exemption or extension in the existing exemptions would not be allowed.

During the period of concession from 2018 to 2023, the facility given to these units crippled the taxpaying units operating in the tax areas of the country. The extension in the exemption period is disastrous for the bonafide taxpaying industries operating in the country.

Under the Finance Bill 2023, an extension in exemption of sales tax to NMDs (FATA/ PATA) has been granted for another one year ending on June 30, 2024.

Moreover, another extension in exemption on machinery and equipment imported by erstwhile FATA areas has been allowed till June 30, 2024. At the same time, the extension of income tax exemption has been granted for one year, i.e., up to June 30, 2024 for resident persons of FATA/ PATA.

The one-year extension in tax exemptions would now be enjoyed by the industrial units of iron/ steel, plastics, ghee, textile and other sectors/ industries located in the erstwhile Federally Administered Tribal Areas/ Provincially Administered Tribal Areas. The sales tax exemption would also be enjoyed on the supplies of electricity to all residential and commercial consumers in tribal areas except steel and ghee or cooking oil industries.

According to the tax expenditure report-2023, certain tax concessions under the Act are granted for a specific economic activity, such as export promotions or certain activities in export processing zones. A unique case in Pakistan is the case of exemptions in erstwhile Federally Administered Tribal Areas (FATA), where exemptions are granted for mainstreaming of the geographic areas.

The report revealed that the government has suffered revenue loss on account of goods supplied from tax-exempt areas of erstwhile FATA/ PATA to the taxable areas FATA/ PATA.

The exemption is available to any income which was not chargeable to tax prior to the commencement of the Constitution (Twenty fifth Amendment) Act, 2018 of any individual domiciled or company and association of persons resident in the Tribal Area forming part of the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Article 246 of the Constitution with effect from June 1, 2018 to June 30, 2023 (both days inclusive).

The income tax exemption is available to the individuals domiciled or companies and associations of persons resident in the ex-Tribal Areas having a revenue impact of Rs10.237 billion.

Sales tax exemption is available on the imports of plant, machinery, equipment for installation in tribal areas and of industrial inputs by the industries located in the tribal areas, as defined in the Constitution- as made till June 30, 2023, to which the provisions of the Act or the notifications issued there under, would have not applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty fifth Amendment) Act, 2018. This exemption available to the manufacturer and the general masses has a revenue impact of Rs1.779 billion.

The exemption is also allowed on the supplies of electricity, as made from the day of assent to the Constitution (Twenty-fifth Amendment) Act, 2018, till June 30, 2023, to all residential and commercial consumers in tribal areas, and to such industries in the tribal areas which were set and started their industrial production before 31st May, 2018, but excluding Residential and commercial consumers of electricity in tribal areas except steel and ghee/cooking oil industries.

The said exemption has resulted in a revenue loss of Rs17.73 million. The report stated that the sales tax exemption has been allowed on the supplies and imports of plant, machinery, equipment for installation in tribal areas and industrial inputs by the industries located in the tribal areas, as defined in the constitution subject to furnishing of security. The said exemption available to the manufacturing sector/ general masses has a huge revenue impact of Rs15.307 billion.

Sales tax exemption has been allowed on the imports of plant, machinery, and equipment for installation in tribal areas and of industrial inputs by the industries located in the tribal areas, as defined in the constitution subject to furnishing of security with reference to STGO 14 of 2022. The said exemption available to the manufacturing sector/ general masses has a huge revenue impact of Rs1.384 billion.

Copyright Business Recorder, 2023