Tax exemptions increase to whopping Rs541b

Reforms made under IMF programme have now been reversed; government doles out relief with elections around the corner

ISLAMABAD: The PML-N government has doled out a whopping Rs541 billion in tax exemptions to various affluent businesses during its last year in power, an amount that is 30% or Rs125 billion higher than the previous year, showed the Pakistan Economic Survey 2017-18.

Massive tax exemptions in a single year suggest the government has reversed reforms implemented under the three-year International Monetary Fund (IMF) programme. The Rs541 billion in tax exemptions are more than double when compared with the amount in 2012-13. When the current government came into power, the cost of tax breaks was Rs239.6 billion.



During the IMF programme that ended in September 2016, the federal government claimed to have withdrawn Rs347 billion worth of Statutory Regulatory Orders (SROs).



Income tax

As against Rs14 billion in income tax exemptions given in the last fiscal year, the cost this year has been estimated at Rs61.8 billion, according to the survey. This is a 341% increase in cost of income tax exemptions, primarily because of the tax breaks given to powerful industrialists. The Rs61.8 billion exemptions amounted to 11.4% cost of the total exemptions given in this fiscal year.

The PML-N government gave Rs34.7 billion in income tax exemptions to industrialists in a bid to revive sick industries and replace obsolete machinery and plants. This was a staggering figure that has gone in the pockets of rich people. Similarly, another Rs8 billion in income tax concessions were given to businesses under the head of listing companies at the stock market and initiating Greenfield investment projects.

Independent Power Producers were given Rs18 billion income tax exemptions on their earnings from selling electricity. The house building investment scheme also caused a loss of Rs1 billion to the exchequer.



Sales tax

About 52% of the total tax exemptions were on account of sales tax. The cost of sales tax exemptions, which stood at Rs250 billion last year, jumped to Rs281 billion in 2017-18.

Out of Rs281 billion, roughly Rs76 billion in exemptions were given to industries under the sixth schedule of the Sales Tax Act, which allows industries not to pay any tax at the output stage of goods. An amount of Rs96.2 billion was lost at the domestic stage and another Rs19.3 billion at the import stage.

The government sustained Rs61.3 billion in losses due to reduced rates for five export-oriented sectors - textile, carpets, leather, sports and surgical. An amount of Rs27.6 billion was lost on account of exemptions on products that are protected under the fifth schedule of the Sales Tax Act.

Another sum of Rs19.3 billion was lost due to exemptions given under the eight schedule of the Sales Tax Act that allows charging goods lower than the standard 17% sales tax.

Customs duty

The cost of customs duty concessions surged to Rs198.2 billion as against Rs151 billion in the previous year. This is an increase of Rs47.2 billion or 31.2% over the previous year. Maximum losses of Rs92.4 billion were booked on account of concessions given under the fifth schedule of the Customs Act, which deals with goods that are exempted from duties.



Roughly, 22% customs duty exemptions were on account of low rates applicable on various bilateral free trade agreements. The loss due to reduced customs duty under the China-Pakistan Free Trade Agreement stood at Rs31.4 billion.

An amount of Rs18.9 billion was waived off in favour of vendors belonging to the automotive sector, which is higher than last year. In addition, Rs35 billion was waived off in favour of the automobile sector, which is far higher than Rs22 billion losses in the previous year. The government is still protecting this sector from foreign competition. Another sum of Rs4.7 billion was written off in favour of oil exploration and production companies on import of machinery, equipment and vehicles.

Published in The Express Tribune, April 27^th, 2018.

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