ISLAMABAD: The Federal Board of Revenue (FBR) has disclosed a significant rise in sales tax concessions granted through reduced tax rates, with the fiscal cost reaching Rs636 billion in 2026, according to the latest Tax Expenditures Report.
The report shows that tax concessions provided under reduced sales tax rates surged by nearly 70 percent, compared to Rs374 billion recorded in the previous year. These concessions were extended under the Eighth Schedule of the Sales Tax Act, 1990, making them one of the largest sources of tax expenditures in Pakistan’s indirect tax system.
Total sales tax exemptions exceed Rs1.27 trillion
According to the FBR report, the overall value of sales tax exemptions, concessions, and reduced-rate facilities reached Rs1.27 trillion in 2026, up from Rs1.24 trillion a year earlier, reflecting an increase of 2.42 percent.
The figures highlight the substantial amount of revenue forgone by the government through various tax incentives aimed at supporting specific sectors and economic activities.
The increase comes despite repeated government commitments to rationalize tax expenditures and broaden the tax base to improve revenue collection.
Reduced rate concessions rise despite IMF reform agenda
The sharp increase in reduced-rate sales tax concessions has been recorded during a period when Pakistan is implementing fiscal reforms under its programme with the International Monetary Fund (IMF).
As part of these reforms, the government has pledged to gradually reduce tax exemptions and concessions that narrow the tax base and limit revenue generation. However, the latest data suggests that concessions granted through reduced sales tax rates have continued to expand significantly.
Import-related sales tax concessions decline
While reduced-rate concessions increased substantially, tax relief granted on imports showed a notable decline.
The FBR report revealed that sales tax concessions on imported goods under the Sixth Schedule of the Sales Tax Act, 1990 dropped to Rs261 billion in 2026, compared to Rs372 billion in the previous year.
The reduction indicates efforts by authorities to tighten import-related tax exemptions and strengthen revenue collection.
Tax relief on local supplies also falls
Similarly, sales tax concessions on local supplies under the Sixth Schedule decreased to Rs306 billion, down from Rs330 billion a year earlier.
`Tax experts believe that reducing exemptions on both imports and domestic supplies is a crucial step toward broadening Pakistan’s tax base and improving the efficiency of the tax system.
Govt faces challenge of balancing revenue and Incentives
The latest figures underscore the challenge facing policymakers as they attempt to increase tax revenues while continuing to provide targeted incentives for businesses and key economic sectors.
Although the government has reduced several categories of tax relief, the substantial rise in reduced-rate sales tax concessions highlights the ongoing fiscal cost of maintaining preferential tax treatments.
The FBR’s Tax Expenditures Report 2026 provides a detailed overview of the revenue impact of exemptions and concessions, emphasizing their significant role in shaping Pakistan’s overall tax collection and budgetary position.
