‘Diplomatic agreements’: FBR excludes revenue loss from cost of tax expenditure

ISLAMABAD: The Federal Board of Revenue (FBR) has excluded huge revenue loss on account of bilateral or multilateral/ diplomatic agreements from cost of annual tax expenditure for 2025-26.

According to FBR report (2026), the exemptions required under bilateral or multilateral agreements to which Pakistan is a signatory, including agreements with the United Nations, diplomatic conventions under the Vienna Convention on Diplomatic Relations, and obligations undertaken in the context of foreign development assistance, are not classified as tax expenditures.

Certain concessions and exemptions are treated as structural elements of the tax base or are granted in compliance with international obligations. Such provisions are not regarded as deviations from the benchmark tax system and are; therefore, excluded from the estimation of tax expenditures in the FBR report.

Also read: FY2024-25: Total federal tax expenditure estimated at Rs2352.81bn

Examples of such exclusions included the minimum income threshold, below which individuals are not subject to tax; exemptions on inter-corporate dividends, aimed at avoiding double taxation within corporate groups; agricultural income, which falls outside the scope of federal income taxation as per the Constitution of Pakistan; concessions granted to diplomats and foreign missions; tax exemptions for United Nations agencies and other international organisations and expenditures resulting from Free Trade Agreements (FTAs), Preferential Trade Agreements (PTAs), and other bilateral or multilateral treaties.

These exclusions are considered integral to the structural design of the tax system or are required under international commitments; accordingly, they do not fall within the scope of tax expenditure estimates, the report added.

Copyright Business Recorder, 2026