Tax exemptions cost Rs185 billion this year

Amount is higher than foreign loans expected next fiscal year.

ISLAMABAD: In a sign of lost revenues, the cost of tax exemptions, largely given to the influential people of the country, has risen to Rs185.5 billion this financial year, which is higher than the amount the government expects to receive in foreign loans next year for financing development projects.

According to the Economic Survey of Pakistan 2011-12, the tax exemptions given in the first 10 months of the current fiscal year (July-April 2011-12) were 5.9% or Rs10.3 billion higher than the cost the country incurred last year.

“Had there been no tax exemptions, the country would not have been required to surrender to tough conditions for seeking loans to finance development projects,” commented an analyst.

In the next fiscal year, the government has projected to receive Rs167 billion in fresh loans for development projects.

In the outgoing year, almost half of the exemptions were given in customs duties while 13% was on account of sales tax and 37.5% was related to income tax. However, as compared to last year, there was a reduction in exemptions from sales tax and customs duties while income tax exemptions grew 50%.

Income tax

In a trend indicating the government’s inability to tax income while succumbing to political pressures, the income tax exemptions cost Rs69.6 billion, higher by Rs23.1 billion or 50% than last year.

The government lost Rs47 billion due to exemptions given to the independent power producers (IPPs). This was 2.6 times more than the amount the government could not be able to pay to the IPPs for purchase of electricity.

The second largest amount, Rs11.2 billion, was waived in favour of enterprises. Owing to lower rates of capital gains tax on the stock market, the government lost Rs2.1 billion in revenues. Last year, CGT exemption stood at Rs19.95 billion.

Customs duties

The cost of exemption from customs duties fell to Rs91.6 billion, a drop of Rs3.3 billion or 3.5% over previous year. Yet, it makes half the total cost of exemptions.

The largest exemption, Rs21.8 billion, was given under the head of general and conditional exemptions, but there was no explanation for these conditional exemptions.

An amount of Rs19.2 billion was waived in favour of the automobile sector despite the fact that vehicle assemblers had been continuously increasing prices of cars. In addition to that, Rs12.8 billion in taxes was waived in favour of vendors of the automobile sector.

On import of machinery, equipment and apparatus, duty exemptions stood at Rs9.8 billion. The government also gave Rs13.8 billion duty exemptions on imports from China while Rs2.8 billion was lost due to concessionary imports from Malaysia.

Exemptions worth Rs2.8 billion were given to oil exploration and production companies.

Sales tax

Owing to withdrawal of certain exemptions like those on sales of fertilisers, the sales tax exemptions fell to Rs24.3 billion, Rs9.5 billion or 28% less than last year.

On sales of tractors, exemptions worth Rs4.3 billion were granted. On sales of pharmaceutical products, Rs5.8 billion tax exemptions were allowed. In the “others” category, Rs14.3 billion of taxes were waived, but there were no details related to this category.

Published in The Express Tribune, June 1^st, 2012.