ISLAMABAD: The fertilizer sector has availed huge sales tax exemption of Rs 252.60 billion during 2022-23 mainly due to sales tax exemption on local supplies of fertilizers.
According to the new Tax Expenditure Report (2024) issued by the Federal Board of Revenue (FBR), the agriculture sector witnessed a phenomenal growth of 28.1% during 2022-23.
The monetary value of agriculture production rose from Rs. 14,891.6 billion in 2021-22 to 19,079.4 billion in 2022-23. Correspondingly the factor input costs of agriculture sector also increased. Growth in agriculture sector consumed greater quantities of fertilizer.
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The import of fertilizer incurred an expenditure of Rs 19.9 billion while the local production of fertilizer was granted Rs 232.6 billion worth of Sales Tax exemptions.
The fertilizer therefore availed a cumulative concession of Rs 252.60 billion under Sixth Schedule (Table I) of Sales Tax Act 1990, according to which fertilizer is 100% exempt item. The tax expenditure (cost of exemption) attributable to the manufacturing sector has been calculated at Rs 98.2 billion.
About major cost of sales tax exemption, the report stated that the largest share of expenditure at 43.99% incurred in the sales tax regime is attributed to POL Products (Local Supplies) amounting to Rs 1,257.51 billion, registering a growth of 98.67%, cost primarily due to zero rating of POL products, introduced from February 2023.
A significant increase of Rs 327.91 billion is observed in the exemption under Sixth Schedule on local supplies of Sales Tax Act 1990, registering a growth of 246.22% which is mainly driven by exemption on Local supply of Fertilizer, the report said.
The report revealed that the federal tax expenditure grew in 2022-23 in terms of absolute value, percentage of FBR collection and GDP. The major contributor towards the increase in the tax expenditure has been zero rating of sales tax on certain POL products, relief measures on exports and other such measures taken for stabilization of the economy.
The GDP (mp) in 2022-23 increased by 27.1% totaling Rs 84,068 billion. Similarly, LSM sector grew from Rs 7,041 billion to Rs 8,534 billion showing a growth of 21.2%. Export value increased from Rs 5,661 billion to Rs 6,859 billion registering a growth of 21.2%. Inflation rose from 21.35 to 29.4%.
The five-year trend of tax expenditures shows a gradual rise over the first three years and steep in last two years. There was a mixed growth trend observed in each tax regime. Income Tax expenditures remained stagnant in absolute terms whereas Sales Tax and Customs Duty Expenditure registered a sizeable growth in last five years, the report added.
Copyright Business Recorder, 2024