Tax Expenditure Report 2021: Revenue impact from IT exemption available to agri income missing

ISLAMABAD: The revenue impact from income tax exemption available to the agriculture income during 2019-20 is missing from the Tax Expenditure Report 2021.

The FBR’s report has not mentioned any figure of revenue loss on account of exemption available to the agriculture income.

The exemption from agriculture income is an exemption just like any other exemption and its cost must have been added in the Tax Expenditure Report 2021.

Under Section 41 (agricultural income) of the Income Tax Ordinance 2001, agricultural income derived by a person shall be exempt from tax under the Income Tax Ordinance 2001.

According to the details submitted by the government before the Parliament stating that Tax Expenditure Report 2021 for federal taxes, sales tax exemption available to the pesticides and their active ingredients registered by the department of plant protection under the Agricultural Pesticides Ordinance, 1971, stabilizers, emulsifiers and solvents caused revenue loss of Rs11.990 billion for 2021-22.

The sales tax exemption available to the seeds, fruit and spores of a kind used for sowing within the agriculture sector (industrial inputs) has revenue impact of Rs2.335 billion.

The income tax exemptions are available to tax credit for charitable donations of Rs2.8 billion, tax credit for investment in shares and life insurance Rs2.6 billion, Shaukat Khanum Memorial Trust, Lahore Rs1 billion, and others.

In last fiscal year 2019-20, the FBR’s tax collection was Rs3,997.4 billion.

Hence, tax expenditure to total collection ratio comes to about 33 percent, and tax expenditure-to-GDP ratio stands at around 3.2 percent.

The tax expenditure estimates are unadjusted amounts, meaning that elimination or repeal of a specific exemption would not necessarily produce the rupee amounts cited in this report.

Actual receipts would depend on enforcement, taxpayer compliance, effective dates of legislation repealing the exemption, exact wording of any legislation, taxpayer’s behaviour, and some other economic factors.

This report briefly outlines federal tax exemptions and concessions.

These descriptions do not grant rights or impose obligations; rather, the tax laws and rules made thereunder determine actual tax liability.

Each estimate is based on the best information available from public and private sources, including the FBR’s database.

It would be exceptionally burdensome on taxpayers to require detailed reporting of transactions corresponding to each of the exemption sections and clauses.

No such detailed reporting is imposed by statute or rules.

Consequently, tax returns do not contain data sufficient to estimate the value of all exemptions and exclusions, the FBR added.

Copyright Business Recorder, 2021