Government Grants Tax Exemptions Worth Over Rs. 2.2 Trillion in FY23, Leading to Revenue Loss

The Federal Board of Revenue (FBR) in Pakistan has faced a significant revenue loss in the fiscal year 2022-23 due to tax exemptions, reduced rates, special tax regimes, and concessions. According to the Economic Survey 2022-23, the revenue loss amounted to Rs. 2,239 billion, marking an increase of Rs. 482 billion compared to the previous fiscal year.

The survey reveals that the revenue loss is a result of exemptions granted through notifications, schedules of federal tax laws, special tax regimes, and concessionary rates on imports. For instance, the reduced rate of sales tax on petroleum products led to a revenue loss of Rs. 632,950 billion in 2022-23.

Furthermore, the sales tax exemption on cellular mobile phones resulted in a revenue loss of Rs. 1,021 million in 2022-23, compared to Rs. 46 billion in the previous year. Sales tax exemption on imports caused a revenue loss of Rs. 257 billion in 2022-23, and the cost of sales tax exemption was reduced by Rs. 270 billion during the same period.

The survey highlights that sales tax exemption on local supplies caused a revenue loss of over Rs. 100 billion, increasing from Rs. 233.541 billion in 2021-22 to Rs. 133,178 billion in 2022-23. Additionally, income tax exemptions amounted to Rs. 423.9 billion, and customs duty exemptions cost Rs. 521.7 billion in 2022-23, reflecting an increase of Rs. 24.238 billion and Rs. 178.81 billion, respectively.

The FBR faced a substantial revenue loss of Rs. 390 billion in 2022-23 due to sales tax exemptions available under the Sixth Schedule of the Sales Tax Act. The cost of customs duty exemptions also increased from Rs. 342.890 billion in 2021-22 to Rs. 521.7 billion in 2022-23.

The Economic Survey sheds light on the significant revenue loss experienced by the FBR as a result of tax exemptions and concessions granted in various sectors.