The federal government has decided to phase out extensive tax exemptions in the upcoming federal budget for the fiscal year 2024-25. This includes ending GST exemptions on around 7,000 items, along with abolishing exemptions and concessions on income tax and customs duty, leading to a reduction in the volume of tax exemptions.
The National Economic Survey for 2024-25, released recently, provided significant insights into tax exemptions. It revealed that tax exemptions totaling Rs 3,979 billion were granted in the current fiscal year, covering income tax, sales tax, and customs duty.
However, it’s important to note that the annual cost of tax losses due to various exemptions has reached a record Rs 3.9 trillion in the current fiscal year, marking a 73% increase from the previous year. This has become a contentious issue in the ongoing negotiations between Pakistan and the International Monetary Fund (IMF).
The Economic Survey of Pakistan 2024, released by Finance Minister Muhammad Aurangzeb on May 11, highlighted that despite multiple rounds of withdrawal of tax concessions and exemptions, the amount continues to rise annually.
These tax exemptions, which have been approved over the years, are protected under existing tax laws. Losses from reductions in tax liabilities amounted to Rs 4.43 billion, lower than the previous year. Exemptions from “specific provisions” cost another Rs 62 billion, also lower than last year.
Income tax exemptions availed by the government increased by 111% to Rs 57 billion. These exemptions also benefited judges of superior courts, the President of Pakistan, military generals, federal bureaucrats, pensioners, and army institutions.
Customs duty exemptions cost Rs 543 billion, up from Rs 522 billion the previous year, marking a 4% increase.
