ISLAMABAD: The total cost of tax exemptions amounted to Rs3.8 trillion during 2023-24, according to a new report of the Federal Board of Revenue (FBR).

The report for 2023-24 revealed that tax expenditures include special provisions within the tax code, such as exclusions, deductions, deferrals, credits, and reduced tax rates, designed to benefit certain activities or taxpayer groups.

A tax expenditure report quantifies the amount of revenue that the government loses as a result of these provisions.

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This report prepared by the FBR offers a thorough summary of various tax concessions granted during tax year tax year (TY) 2024, providing insight into the economic responses of different sectors to these tax benefits.

Globally, it is observed that developed countries have higher tax expenditures compared to less developed nations.

Key Findings of report revealed that the total federal tax expenditure is estimated at Rs 3,879.20 billion during 2023-24. The break-up under various tax regimes revealed Income Tax expenditure was Rs 476.96 billion (6.66 percent of FBR’s collection, 12.30 percent of total expenditure and 0.57 percent of GDP).

Sales tax expenditure stood at Rs 2,858.72 billion (39.91 percent of FBR’s collection, 73.69 percent of total expenditure and 3.40 percent of GDP). The Customs Duty expenditure amounted to Rs543.52 billion (7.59 percent of FBR’s collection, 14.01 percent of total expenditure and 0.65 percent of GDP).

The total expenditure is 54.15 percent of FBR’s total tax collection for fiscal year (2022-23) and has increased from 36.43 percent in previous fiscal year.

The total expenditure is approximately 4.61 percent of the GDP during this period compared to 3.36 percent in the previous year.

Federal tax expenditures increased in 2022-23, in terms of absolute value, as a percentage of FBR’s total tax collection and as a percentage of GDP. This rise was primarily driven by the zero-rating of sales tax on certain POL products, export relief measures, and other economic stabilization efforts.

The GDP (mp) in 2022-23 saw a 27.1 percent increase, reaching Rs 84,068 billion. Similarly, the Large-Scale Manufacturing (LSM) sector expanded from Rs 7,041 billion to Rs 8,534 billion, reflecting a growth of 21.2 percent. Export values also grew from Rs 5,661 billion to Rs 6,859 billion, marking a 21.2 percent increase. Additionally, inflation escalated from 21.35 percent to 29.4 percent, report added.

Copyright Business Recorder, 2024