Revenue loss from tax exemptions

HE National Assembly passed the federal budget 2015-16 last Tuesday. But it does not reflect the changes secretly made by the Federal Board of Revenue while the budget was still being debated.

The tax officials converted a 33pc increase in tax exemptions to a decline while the budgetary proposals were being debated.

Also read: Ishaq Dar eyes 7pc growth by tenure end

They did the trick by changing figures in the tax expenditure chapter in the Pakistan Economic Survey 2014-15. The figures put on the finance ministry’s website differ from those given in the Survey, which was released on June 4.

There is no explanation by the tax authorities for making the changes in the total volume of exemptions to show a feel-good figure. One tax official said the raise in tax exemption figure was a typographical error.

However, the changes introduced in the survey were under three heads of sales tax rates. So it was actually a subtraction of Rs253bn from the total projected amount of Rs478.4bn in sales tax exemptions.


The survey shows that the exemptions amounted to Rs665bn — nearly 25pc of the FBR’s total collection in fiscal year 2014-15 — against Rs477.1bn in the previous year, depicting an increase of Rs187.9bn. This is the fastest rate of increase in many years, with the exception of 2013 which was an election year.

The FBR has witnessed a collection shortfall of Rs205bn in the first 11 months of this fiscal, against the revised estimate of Rs2,605bn, much below the original budgetary target of Rs2,810bn.

The government withdrew tax exemptions worth Rs104bn in the first phase of SRO withdrawals. Under the second phase, the withdrawal of concessionary regimes under various SROs and schedules are worth Rs132bn, as announced in the FY16 budget.
How did the quantum of the overall revenue lost through tax exemptions rise during a year when the government was busy withdrawing SROs to cut down on these exemptions?

An analysis of the statistics shows that the total amount of tax exemptions should have fallen to Rs373bn in 2014-15 after the withdrawal of Rs104bn worth of exemptions. But the overall amount of forgone revenue is still higher by Rs39bn.

How did the quantum of the overall lost revenue through tax exemptions rise during a year when the government was busy withdrawing SROs to cut down on these exemptions?

Last year, the government announced that all SROs will be withdrawn in three years and the power to grant exemptions will be taken out of the hands of the tax bureaucracy. Through the finance bill 2015, SROs will now be issued with the approval of the parliament, except in some cases where the Economic Coordination Committee of the federal cabinet will be empowered to issue them.