Business & Finance Print edition: 2026-06-25

ST exemptions, reduced rates account for 54.1pc of tax expenditure losses

Published June 25, 2026 Updated June 25, 2026 05:32am

2 min

By Sohail Sarfraz

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ISLAMABAD: Tax Expenditure Report-2026 Wednesday disclosed that the sales tax continues to account for the largest share of total federal tax expenditure (revenue loss) at 54.1 percent, due to reduced-tax rate treatment of pharmaceutical products and the sales tax exempt supply regime for food and agricultural inputs in 2024-25.

According to the Tax Expenditure Report-2026 issued on Wednesday, the Customs Duty expenditure decreased significantly, reflecting the reclassification of international trade agreement concessions and export input remissions as structural features of the customs duty base.

The total Tax Expenditure estimate for FY 2024-25 is Rs. 2,352.81 billion, which accounts for 2.07 percent of GDP and 20.04 percent of total tax collection by the FBR.

Sales Tax accounts for the largest share of tax expenditure at Rs. 1,273.98 billion (54.1 percent of total), followed by Income Tax at Rs 579.70 billion (24.6 percent) and Customs Duty at Rs. 499.14 billion (21.3 percent).

The Income Tax Expenditure for FY 2024-25 is estimated at Rs. 579.70 billion. This represents 24.6 percent of total federal tax expenditure and 0.51 percent of GDP. The estimate covers exemptions, tax credits, reduced rates, and deductible allowances that represent genuine departures from the benchmark income tax system.

Income from government entities under Section 49, provincial government statutory funds, constitutional transitional arrangements, and procedural withholding provisions have been reclassified as structural benchmark elements and are excluded from this total, the report added.

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