ISLAMABAD: The federal government gave tax exemptions worth of Rs540.98 billion during the ongoing financial year 2017-18, which are 30 per cent more than the previous fiscal year’s exemptions of Rs415.8 billion, the latest Economic Survey showed.
The single-largest contributor to the surge in tax exemptions is the Free Trade Agreement (FTA) with China, where the figure came in at Rs92.4 billion, climbing by 46pc from last year’s Rs63 billion.
As a proportion of total revenues collected by the Federal Board of Revenue (FBR), the cost of exemptions stood at 12pc in 2012-13 when the incumbent government took charge from the previous government.
Based on Economic Survey estimates for the current year, it will reach 13.5pc in case the budgetary target for FBR revenues is achieved.
INCOME TAX EXEMPTIONS
The overall income tax exemptions have swelled to Rs61.8 billion in FY2018 from Rs14 billion of the previous year, an increase of around Rs47 billion. Tax credit availed for balancing modernisation and replacement of plant & machinery has cost Rs34.7 billion. Tax loss due to exempt business income claimed by IPPs under clause (132) of Part 1 of the Second Schedule of Income Tax Ordinance 2001 caused tax loss of Rs17.9 billion. Similarly, tax relief of Rs1.04 billion was given regarding interest on house building and Rs0.057 billion tax relief on education expense. Around Rs3.32 million losses occurred as tax credit for establishing new industry under section 65D of the Ordinance.
SALES TAX EXEMPTIONS
The government has given sales tax exemptions worth of Rs281.05 billion. According to the survey, sales tax exemptions were provided under the export facilitation schemes and general and sector specific SROs. One SRO-based sales tax exemption stood at Rs61.3 billion in 2017-18. This exemption was mentioned because of five export sectors – leather, textile, carpets, surgical and sports goods. The cost of sales tax exemptions because of import and local supply placed under the 5th schedule of the income tax stood at Rs28.35 billion in 2017-18. And the cost of exemptions on import and local supply of items placed under the 6th schedule arrived at Rs172.1 billion during 2017-18 as against Rs156.9 billion of the last year. The cost of exemption on the import of products under 8th schedule stood at Rs19.3b this year as against Rs16.4b last year.
CUSTOMS EXEMPTIONS
The customs exemptions surged to Rs198.2 billion in FY2018 as compared to Rs151.7 billion of FY2017. The increase was mostly on account of preferential trade agreements (PTAs), especially with China that Pakistan signed in the recent past and other duty exemptions. Maximum exemptions were given in customs duties available on imports from China under free trade agreement (FTA), which climbed to Rs92.4 billion in the ongoing fiscal year.
Duty exemptions on imports from South Asian Association for Regional Cooperation and Economic Cooperation Organisation countries stood at Rs274 million this year. FTA with Sri Lanka has caused tax loss of Rs2.8b this year against Rs2.5b last year.
Tax exemption from customs duty for vendors of automotive sector remained Rs19 billion. Other major beneficiaries of these exemptions were the original equipment manufacturers (OEMs) of the automotive sector and vendors who availed Rs35 billion exemptions in 2017-18.
