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ISLAMABAD: The Russian Federation tops the world in granting tax exemptions to its citizens, ie, an estimated 14.8 percent of its Gross Domestic Product (GDP), according to a report of the Federal Board of Revenue (FBR) on tax exemptions.

Pakistan and India appear at the lower tail of this distribution, Pakistan has tax expenditure equal to 2.8% of GDP and India has an expenditure of 0.4% of their GDP, the FBR added.

The FBR’s report on tax expenditure-2022 revealed that the global comparison of 21 countries’ tax expenditure during 2019 and 2020 shows that most advanced countries have higher estimates of forgone tax revenues.

Within the sample set of countries, the Russian Federation tops the list with an estimated 14.8% of GDP as tax expenditure while India is at the other extreme with only 0.4% of GDP as tax expenditure. Pakistan is ranked 19th in the list with an estimated 2.8% of its GDP in terms of tax expenditure.

A large number of countries provide concessions, exemptions and tax relief on certain products and segments of society. Figure 2 shows that there is a huge variation across countries. Most advanced countries report significantly higher estimates of revenue forgone.

FBR estimates potential Rs3trn tax gap

The FBR said that the Russian Federation is not only one of the largest economies but at the same time it provides a huge size of tax exemptions. In U.S., income tax expenditure constitutes 6.6% of GDP which is more than 1.4 trillion dollars a year. This amount is 4 times higher than the total GDP of Pakistan. Similarly, the government tax revenue gets reduced by more than 8% of GDP in Australia. Canada, Japan and UK are also creating tax expenditures that is more than 7% of their GDP.

The revenue is forgone or tax expenditure in European countries is relatively close to the world average of the tax expenditure (around 4% of GDP). However, Finland and Netherlands are exceptions, where tax expenditures exceed by 12% of their GDP.

A large number of small and emerging economies also give tax concessions and exemptions both at local supplies and imported goods. For instance, they amount to more than 4% of GDP in Brazil and South Africa, come close to 8% in Colombia and Mauritania, and exceed 10% in Jordan, the FBR tax expenditure report maintained.

Copyright Business Recorder, 2022

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