The total tax exemptions and concessions to various businesses, sectors, lobbies/groups, investors and Chinese imports have cost the government Rs 972.4 billion during the fiscal year 2018-19 against Rs 540.98 billion in 2017-18, reflecting an increase of Rs 431.42 billion. The Economic Survey 2018-19 released here on Monday disclosed that single-largest contributor to the surge in tax exemptions is the exemption from sales tax on local supplies, showing massive revenue loss of Rs 247.3 billion during 2018-19.
Total cost of exemptions granted on imports from China caused accumulative revenue loss of over Rs 32 billion under SRO 1296(I)/2005, SRO 642(I)2016 and SRO 659(I)/2007 during the period under review. The cost of sales tax exemptions totalled at Rs 597.7 billion in 2018-19 against Rs 281.05 billion in 2017-18; income tax, Rs 141.6 billion against Rs 61.78 billion; and cost of customs duty exemptions was Rs 233.1 billion against Rs 198.15 billion in 2017-18.
Within the category of direct taxes, the cost of income tax exemption has been increased by Rs 79.868 billion in 2018-19 when compared with previous year. The Economic Survey has mentioned a revenue loss of Rs 18.034 billion on account of exempt business income granted to independent power producers (IPPs) during 2018-19.
Similarly, the survey has not mentioned any revenue loss from capital gains.
The revenue loss on account of tax credit for charitable donations totalled at Rs 2.448 billion; revenue loss due to tax credit under section 100C Rs 13.977 billion and revenue loss on account of tax credit for investment in shares and insurance under section 62 of the Income Tax Ordinance caused a revenue loss of Rs 2.055 billion during 2018-19.
The Economic Survey highlighted that the FBR has suffered massive revenue loss of Rs 301 billion in 2018-19 due to sales tax exemptions available under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act against Rs 172.1 billion in 2017-18, reflecting an increase of Rs 128.9 billion.
The FBR has suffered a loss of Rs 156 billion due to sales tax exemptions available under the Eight Schedule (Conditional Exemption) of the Sales Tax Act, 1990.
On the other hand, the revenue loss on account of rationalisation of corporate tax rate in 2018-19 has not been mentioned in the survey. In 2017-18, the rationalisation of corporate tax rate caused huge revenue loss of Rs 12 billion during this period.
Sales tax zero-rating facility available to the five leading export-oriented sectors - textile, leather, carpets, surgical and sports goods - caused a revenue loss of Rs 86.7 billion in 2018-19 against Rs 61.3 billion in 2017-18.
The total revenue loss from Fifth Schedule of the Sales Tax Act 1990 amounted to Rs 54.09 billion during the period under review against Rs 28.35 billion in 2018-19, reflecting an increase of Rs 25.74 billion. Imports under the Fifth Schedule of the Sales Tax Act 1990 caused a revenue loss of Rs 0.59 billion during 2018-19 whereas the local supplies under the Fifth Schedule of the Sales Tax Act 1990 caused a revenue loss of Rs 53.5 billion in 2018-19.
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 Rs 61.777 billion during 2017-18 to Rs 141.645 billion in 2018-19.
The tax credit availed for investment in balancing, modernisation and replacement of plant and machinery under section 65B of the Income Tax Ordinance caused a revenue loss of Rs 90.954 billion; tax credit for establishing new industry under section 65D of the Ordinance resulted in revenue loss of Rs 5.487 billion; credit under section 64A of the Income Tax Ordinance, 2001 regarding interest on the house building caused revenue loss of Rs 1.191 billion; and credit under section 64AB deductible allowance on educational expenses caused a revenue loss of Rs 0.067 billion.
The revenue loss due to exemption to export of IT services caused a revenue loss of Rs 0.608 billion during the period of 2018-19. The cost of exemptions in respect of customs duty has been calculated at Rs 233.134 billion for 2018-19 against Rs 198.151 billion, reflecting an increase of Rs 34.983 billion. The exemption of customs duty for the import of items used in Lahore Orange Line Metro Train caused a revenue loss of Rs 749.1 million during 2018-19.