PTI govt gives Rs1.15tr in tax break

Highest amount of tax concessions given in FY20 to affluent people

ISLAMABAD:

In an alarming development, the Pakistan Tehreek-e-Insaf (PTI) government doled out a record Rs1.15 trillion in tax exemptions to the affluent people and under international commitments in the outgoing fiscal year, breaking its own one-year-old record, showed the Pakistan Economic Survey 2019-20.

Cumulatively, the PTI government has given Rs2.12 trillion in tax exemptions during its first two years in power - an amount that is sufficient to build two Mainline One (ML-I) projects of the China-Pakistan Economic Corridor (CPEC). The estimated cost of the ML-1 project is Rs1.1 trillion or $7.2 billion and the government has given Rs2.2 trillion in tax concessions.



The Federal Board of Revenue (FBR) has estimated the cost of what it called tax expenditures at Rs1.15 trillion on account of income tax, sales tax and customs duty concessions in this fiscal year, according to the survey.

It was the highest amount of concessions given in any fiscal year. It was also higher by Rs177.6 billion or 18.2% compared with the concessions given in the previous fiscal year when the PTI government gave Rs972.4 billion in exemptions.

Withdrawing the tax concessions, largely availed by the affluent, has remained an integral part of the International Monetary Fund (IMF) programmes. In the last IMF programme, which ended in September 2016, the federal government claimed to have withdrawn Rs347 billion worth of Statutory Regulatory Orders (SROs). Yet, the cost of exemptions is soaring every year.

Income tax

As against Rs141.6 billion worth of income tax exemptions given in the last fiscal year, the FBR has estimated cost of income tax exemptions this year at Rs378 billion, according to the survey.

There was an increase of 167% or Rs236.4 billion in the cost of income tax exemptions, primarily because of tax breaks given to the powerful industrialists, government functionaries and certain entities. The Rs378 billion exemptions were equal to nearly one-third of the total cost of exemptions given in the current fiscal year.

Unlike the past, when the government had clearly named the beneficiary sectors, this time the government has vaguely explained these sectors. An amount of Rs36.4 billion income tax exemptions were given in allowances, Rs104.5 billion in tax credit exemptions and Rs212 billion in exemption from total income.

An amount of Rs3 billion were lost due to reduction in tax rates, and another Rs3 billion on account of exemptions from “specific provisions”.  Meanwhile, Rs18.9 billion worth income tax exemptions from government income were given.



Sales tax

About 45% of the total tax exemptions were on account of sales tax. The cost of sales tax exemptions, which stood at Rs598 billion last year, reduced to Rs518 billion this time around. There was a 13.2% or Rs79 billion reduction in the cost of sales tax breaks within one year.

Out of roughly Rs519 billion, Rs255.8 billion in exemptions were given to industries on imports. An amount of Rs54.8 billion was lost on local supplies.

An amount of Rs13.6 billion was lost on account of exemptions on products which were protected under Fifth Schedule of the Sales Tax Act. The Fifth Schedule relates to the zero-rated tax system.

Another Rs82.7 billion was lost due to the exemptions given under Eighth Schedule of the Sales Tax Act, which allows imposition of lower than standard 17% sales tax. The Rs53 billion worth of exemptions were given by reducing GST rates under various schedules and Rs23.1 billion were lost due to low GST collection rates on mobile phones sales.

Customs duty

The cost of customs duty expenditure surged to Rs253.1 billion against Rs233 billion in the previous year. There was an increase of Rs20 billion or 18.5% over the previous year, according to the survey.  Maximum losses of Rs95.4 billion were booked on account of customs duties concessions to automobile sectors, oil and gas exploration sectors and CPEC.

The Rs88 billion concessions were booked under Fifth Schedule of the Customs Act, which deals with goods exempted from customs duties.

The Rs45 billion custom duties exemptions were on account of low rates applicable to various bilateral free trade agreements.

Similarly, Rs10.6 billion worth concessions were given under chapter 99 of the Customs Act, Rs4.8 billion exemptions were from additional custom duties and Rs9.4 billion were lost due to exemptions from regulatory duty.

Published in The Express Tribune, June 12^th, 2020.

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