ISLAMABAD: The Federal Board of Revenue (FBR) has disclosed that the government’s policy of granting tax-free total income to various groups resulted in a staggering cost of Rs443 billion to the national exchequer during the fiscal year 2024-25.
This figure represents a substantial 53% increase from the Rs293.46 billion recorded in the previous fiscal year, highlighting the escalating impact of tax exemptions on Pakistan’s revenue base.
A detailed FBR report reveals that a broad spectrum of individuals and institutions are benefiting from complete tax waivers under Part 1 of the Second Schedule of the Income Tax Ordinance, 2001.
Key Beneficiaries of Total Income Exemptions
The FBR’s analysis identifies several significant categories of beneficiaries enjoying these comprehensive tax breaks:
Foreign Governments and Non-Resident Investors: Profit on debt or capital gains earned by foreign governments and non-resident investors from approved debt instruments are entirely tax-free, provided they are approved by federal authorities.
Pensioners: A major group benefiting from this exemption includes retired employees of federal and provincial governments, as well as armed forces veterans. Their pensions, including commuted pension payments, remain fully exempt from tax. This benefit also extends to their families and dependents.
Provident, Gratuity, and Superannuation Funds: Income generated by trustees managing recognized provident, gratuity, or superannuation funds is also exempt from taxation.
Employees Old Age Benefits Institution (EOBI): The EOBI, operating under the 1976 Act, enjoys complete tax exemption on its total income.
Non-Profit and Philanthropic Institutions: Hospitals and various international organizations are shielded from income tax, provided they adhere to specific legal and operational criteria.
Collective Investment Schemes and REITs: These entities are exempt from income tax, contingent on their distribution of at least 90% of their annual accounting income (excluding capital gains) to investors.
Government Subsidies: Subsidies granted by the federal government to individuals for the execution of state-mandated projects are also exempt, ensuring that no tax is levied on this form of income.
Energy Sector Businesses: Taxpayers involved in electric power generation projects established since July 1, 1988, continue to benefit from older exemptions. Profits from privatized entities, such as the National Power Parks Management Company, also remain protected under this tax-free regime.
With the total cost of these exemptions reaching Rs443 billion, the FBR’s report underscores the critical need for a balanced approach between providing social support and ensuring revenue sustainability. This revelation comes at a time when Pakistan is actively seeking to strengthen its fiscal base and enhance its financial stability.
