ISLAMABAD: Cash-strapped Pakistan witnessed the highest-ever single-year increase in tax exemptions or concessions, surging by 73.24 per cent or Rs1.64 trillion in the outgoing fiscal year.

The Pakistan Economic Survey 2023-24, released by Finance Minister Muhammad Aurangzeb, showed that the Federal Board of Revenue (FBR) doled out a record Rs3.879tr in FY24 compared to Rs2.239tr in FY23. The cost of tax exemptions has climbed for the sixth consecutive year despite the government’s claim that exemptions will gradually decrease.

The significant rise in tax exemption costs is mainly due to the Rs1.338tr waiver on domestically supplied and imported petroleum, oil, and lubricant (POL) products. It’s important to note that this isn’t an exemption as the federal government has already collected the maximum amount through the petroleum development levy (PDL).

As a result, the federal government incurs negligible costs.The International Monetary Fund (IMF) is concerned about these tax waivers and has asked the government to abolish them. The budget 2024-25 will show the actual number of exemptions that will be eliminated to meet the FBR’s ambitious revenue targets.

The value of tax exemptions has been increasing over the years. In FY18, it was Rs540.98bn, rising to Rs972.4bn in FY19, to Rs1.49tr in FY20 and then slightly eased to Rs1.314tr in FY21 and then again surged to Rs1.757tr in FY22. These tax concessions were extended to all sectors to promote industrialisation. Tax exemptions are the revenues foregone by the state under different categories to various industries and other groups.

The sales tax exemption on petroleum goods resulted in a loss of Rs1.257tr to the national exchequer in the outgoing FY24. To compensate for this loss, the government has raised approximately the same amount through the PDL. The net loss is for provinces because PDL is not available for distribution under the divisible pool and is retained by the centre.

The cost of exempting sales tax at the import stage on POL products was reported at Rs81.22bn in FY24.