FBR issues tax expenditure report-2023: More exemptions, concessions given during 2021-22

ISLAMABAD: The Federal Board of Revenue (FBR) has given more sales tax exemptions, zero-rating and concessions to the business community and powerful lobbies/groups during 2021-22 as compared to 2020-21.

According to the new tax expenditure report-2023 issued by the FBR, the cost of income tax exemptions during 2021-22 has decreased in overall tax expenditure of federal taxes as compared to 2020-21.

On the other hand, the cost of sales tax exemptions during 2021-22 has considerably increased in overall tax expenditure when compared with 2020-21.

Changes in FBR’s tax expenditure may affect provincial revenues

The report said that the percentage share of different taxes in tax expenditure for 2021-22 in comparison with 2020-21 shows interesting results.

A decline is observed in share of income tax expenditure in overall tax expenditures, whereas share of sales tax expenditure has increased significantly while the custom duty expenditure remains stable during 2021-22 as compared to 2020- 21.

The tax expenditure report-2023 further revealed that the income tax expenditures are classified into various types of measure, i.e., allowances, credits, exemptions, reduced rates, exclusion, etc. Overall income tax expenditure accounted for 18.93% of the total expenditure in 2021-22.

Income tax-related expenditure higher by 1.77 percent during 2021-22 as compared to 2020-21. Major chunk of income tax exemptions pertains to incomes exempt from tax given in Part I of Second Schedule (54.82%), followed by specific provisions (16.24%) and tax credits (12.30%).

A substantial jump has been noted in tax expenditure on account of reduction of rates mainly because of non-availability of data on certain clauses during previous fiscal year and addition of some clauses through Finance Act, 2021 related to reduction in rates on import of sugar.

The largest share of income tax expenditure was incurred in Part I of Second Schedule of Income Tax Ordinance, 2001. However, variation under this item was negligible for 2021-22 as compared to the previous year.

The tax expenditure in income tax constitutes approximately 0.64% of GDP in the 2021-22.

The income tax expenditure on account of tax credits was reduced by 20.37 percent in 2021-22 in comparison with the previous year.

The total income tax expenditure showed an increase of 1.77 percent in 2021-22 as compared with 2020-21.

The report further stated that sales tax expenditure has been calculated for sales tax at local and import stage. The sales tax expenditure increased by 74.93 percent as compared to that in preceding year. The overall tax expenditure is 57.78 percent of the total expenditure in 2021-22.

The major share (48.91%) of sales tax expenditure goes to exemptions given on POL products through various SROs followed by exemption under Sixth Schedule on (Imports) (19.90%) of sales tax expenditure, zero-rating under Fifth Schedule (10.77%), local supplies under Sixth Schedule (10.29%), reduced rates under Eighth Schedule (10.04%) and sales tax on cellular mobile phones under Ninth Schedule (0.08%).

Copyright Business Recorder, 2023