ISLAMABAD: The total tax exemptions and concessions to various businesses, sectors, lobbies/groups, investors and Chinese imports have cost the government Rs1,149.95 billion during the fiscal year 2019-2020 against Rs972.4 billion in 2018-2019, reflecting an increase of Rs177.55 billion.

The cost of tax exemptions registered a growth of 18.25 percent during 2019-20 as compared to tax expenditure in 2018-19.

The Economic Survey 2019-2020 released here on Thursday disclosed that single-largest contributor to the surge in tax exemptions was the exemption from sales tax on imports, showing a massive revenue loss of Rs255.843 billion during 2019-2020. Sales tax exemption on local supplies caused revenue loss of Rs 54.871 billion in 2019-20 against Rs 247.3 billion in 2018-19, reflecting a major decrease of Rs 192.429 billion.

This has been followed by a revenue loss of Rs212.070 billion from exemption from total income during 2019-2020.

The cost of sales tax exemptions totalled at Rs 518.814 billion in 2019-20 against Rs 597.7 billion in 2018-19, reflecting a decrease of Rs 78.886 billion; income tax, Rs 378.03 billion against Rs 141.6 billion, showing an increase of Rs 236.43 billion and cost of customs duty exemptions was Rs 253.111 billion in 2019-20 against Rs 233.1 billion in 2018-19, reflecting an increase of Rs 20.011 billion.

Despite withdrawal of sales tax zero-rating facility from five leading export-oriented sectors, - textile, leather, carpets, surgical, and sports goods from 2019-2020, the cost of sales tax exemption still remained higher, at Rs518.814 billion in 2019-2020.

Within the category of direct taxes, the cost of income tax exemption has been increased by Rs236.426 billion in 2019-2020, when compared with the previous year.

The Economic Survey has not mentioned revenue loss on account of exempt business income granted to independent power producers (IPPs).

Similarly, the survey has not mentioned any revenue loss from capital gains.

The accumulative revenue loss on account of tax credits amounted to Rs104.498 billion.

This year, the government has not specified details of revenue loss on account of tax credits for charitable donations, tax credit under Section 100C, and revenue loss on account of tax credit for investment in shares and insurance under Section 62 of the Income Tax Ordinance.

The survey has not specified data about the tax credit availed for investment in balancing, modernisation and replacement of plant and machinery under Section 65B of the Income Tax Ordinance; tax credit for establishing new industry under Section 65D of the Ordinance; credit under Section 64A of the Income Tax Ordinance, 2001, regarding interest on house building, and credit under Section 64AB deductible allowance on educational expenses.

The Economic Survey has also not mentioned revenue loss on account of sales tax exemptions available under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act. In 2018-2019, the FBR has suffered massive revenue loss of Rs301 billion in 2019-2020 due to sales tax exemptions available under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act.

The FBR has suffered a loss of Rs118.137 billion due to sales tax exemptions available under the Eight Schedule (Conditional Exemption) of the Sales Tax Act, 1990, during the period of 2019-2020 against Rs156 billion in 2018-2019. The revenue loss from conditional exemptions has been reduced by Rs37.863 billion.

Other reduced rates of sales tax have caused revenue a loss of Rs53.138 billion during 2019-2020. The exemption of sales tax on cellular mobile phones under Ninth Schedule of the Sales Tax Act, 1990, resulted in a revenue loss of Rs23.154 billion during 2019-2020.

On the other hand, the revenue loss on account of rationalisation of corporate tax rate in 2019-2020 has not been mentioned in the survey.

In 2017-2018, the rationalisation of corporate tax rate caused a revenue loss of Rs12 billion during this period.

The total revenue loss from zero-rating facility granted to various sectors under Fifth Schedule of the Sales Tax Act, 1990, amounted to Rs13.671 billion during the period under review against Rs54.09 billion in 2018-2019, reflecting a negative growth of Rs40.419 billion.

The FBR has not specified any revenue loss to the exemptions within the federal excise regime, reflecting no loss occurred on this account.

The cost of income tax exemptions was considerably enhanced from Rs141.645 billion in 2018-2019 to Rs378.026 billion in 2019-2020.

The revenue loss due to exemption to export of IT services during 2019-2020 has not been mentioned in the survey, which has caused a revenue loss of Rs0.608 billion during 2018-2019.

The cost of exemptions in respect of customs duty has been calculated at Rs253.111 billion for 2019-2020 against Rs233.134 billion for 2018-2019, reflecting an increase of Rs19.977 billion.

The exemption of customs duty available under Chapter-99 (special classification provisions) of the Customs Act has caused a revenue loss of Rs10.649 billion during 2019-2020.

The concessions under Fifth Schedule of the Customs Act, 1969 caused revenue loss of Rs87.859 billion in 2019-2020 as compared to Rs99.558 billion in 2018-2019, reflecting an increase of Rs145.275 billion.

The FBR has suffered a massive revenue loss on account of tariff concessions and exemptions available under a Free Trade Agreements (FTAs) and the Preferential Trade Agreements (PTAs) during 2019-2020.

Similarly, exemption of customs duty on the items by automobile sector, exploration and production (E&P) companies and CPEC caused a loss of Rs95.420 billion during 2019-2020.

The exemption of additional customs duty caused a revenue loss of Rs4.773 billion, and exemption from regulatory duties resulted in revenue loss of Rs9.390 billion during the period under review.

The exemption of customs duty for vendors of automotive sector caused a revenue loss of Rs26.604 billion in 2018-2019 as compared to Rs18.899 billion in 2017-2018, showing an increase of Rs7.705 billion.

The exemption of customs duty for OEMs of automotive sector caused a revenue loss of Rs38.818 billion in 2018-2019 as compared to Rs35.030 billion in 2017-2018, reflecting an increase of Rs3.788 billion.

Copyright Business Recorder, 2020

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