ISLAMABAD: The business community is again seeking tax exemptions, special tax rates, and tax credits and concessions in the coming budget (2023-24), at a time, when the total cost of tax exemptions stood at Rs1.7 trillion during 2021-22.

Tax experts told Business Recorder that the Federal Board of Revenue (FBR) is finalising the cost of tax exemptions for the Economic Survey (2022-23). The cost of tax exemptions is being worked out for 2022-23 on the basis of exemption SROs and concessionary/ lower tax rates and discriminatory tax treatments given to various sectors including tax exemptions granted to erstwhile tribal areas. The Customs Budget Wing and Inland Revenue Budget Wing have provided the exemption data to the directorate general of revenue analysis for compilation of the Economic Survey.

The total tax exemptions, concessions and special tax treatments to various businesses, sectors/ industries, lobbies/ groups and investors had cost the government Rs1,757.035 billion during the fiscal year 2021-22 against Rs1,314.3 billion in 2020-21, reflecting an increase of Rs442.735 billion.

Industries in tribal areas: Fate of tax exemptions to be decided in FY24 budget

The single-largest contributor to the surge in sales tax exemptions was the exemption from sales tax on imports, showing a massive revenue loss of Rs527 billion during 2021-22. Sales tax exemption on local supplies caused a revenue loss of Rs233.541 billion against Rs156.134 billion, reflecting an increase of 50 per cent. This was followed by a revenue loss of Rs232.852 billion from exemption from total income during 2021-22.

The cost of income tax exemptions amounted to Rs399.662 billion against Rs448.046 billion, showing a decrease of Rs48.424 billion (-11 per cent)and the cost of customs duty exemptions was Rs342.890 billion in 2021-22 against Rs287.771 billion in 2020-21, reflecting an increase of Rs55.119billion (19 per cent).

The accumulative revenue loss on account of tax credits amounted to Rs65.465 billion in 2021-22 against Rs105.342 billion in 2020-21, showing a decrease of 38 per cent. There is a significant decrease in the cost of income tax exemption on account of tax credits to the tune of Rs39.877 billion in 2021-22.

The FBR suffered a massive revenue loss of Rs760.543 billion in 2021-22 due to sales tax exemptions available under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act. The FBR had suffered a loss of around Rs191 billion due to sales tax exemptions available under the Eighth Schedule (Conditional Exemption) of the Sales Tax Act, 1990, during the period of 2021-22 against Rs208 billion in 2020-21.

The exemption of sales tax on cellular mobile phones under the Ninth Schedule of the Sales Tax Act, 1990, resulted in a revenue loss of Rs49.891 billion during 2021-22 against Rs27.096 billion during 2020-21, reflecting an increase of 84 per cent.

The total revenue loss from the zero-rating facility granted to various sectors under the Fifth Schedule of the Sales Tax Act, 1990, amounted to Rs11.367 billion during the period under review against Rs12.887 billion in 2020-21, reflecting a negative growth of 12 per cent.

The cost of income tax exemptions was decreased from Rs448.046 billion in 2020-21 to Rs399.662 billion in 2021-22, showing a decrease of 11 per cent.

The cost of exemptions in respect of customs duty has been calculated at Rs342.890 billion for 2021-22 against Rs287.771 billion for 2020-21, reflecting an increase of 19 per cent.

The exemption of customs duty available under Chapter-99 (special classification provisions) of the Customs Act has caused a revenue loss of Rs15.963 billion during 2021-22 against Rs12.645 billion in 2020-21, reflecting an increase of 26 per cent.

The concessions under the Fifth Schedule of the Customs Act, 1969 caused a revenue loss of Rs168.754 billion in 2021-22 as compared to Rs137.418 billion in 2020-21, reflecting an increase of 23 per cent.

The FBR has suffered a massive revenue loss of Rs46.105 billion during 2021-22 against Rs34.210 billion in 2020-21 on account of tariff concessions and exemptions available under Free Trade Agreements (FTAs) and the Preferential Trade Agreements (PTAs).

Similarly, exemption of customs duty on the items by automobile sector, exploration and production (E&P) companies and the CPEC caused a loss of Rs60.987 billion in 2021-22 against Rs55.877 billion during 2020-21, showing an increase of nine per cent.

The export-related exemptions cost revenue loss of Rs51.081 billion during 2021-22 against Rs47.631 billion during 2020-21, reflecting an increase of seven per cent.

Copyright Business Recorder, 2023