Rs30bn tax exemptions given to foreign uplift agencies, non-residents

ISLAMABAD: The government has provided tax exemption of Rs30 billion to development agencies of foreign governments, foreign nationals, or any other non-resident person approved by the federal government.

Any income derived by certain listed philanthropic organizations like hospitals, governmental and non-governmental and international entities such as foundations, societies, boards, trusts, and funds mentioned in clause 66 of Part 1 of the Second Schedule enjoy tax exemption of Rs22.09 billion, this shows tax expenditure cost calculated by the FBR and tabled before the parliament along with budget documents for 2023-24.

The profit on debt on foreign currency accounts holders stands at a foregone tax amount of Rs1.45 million (only one bank has submitted its figures until the compilation of this report). The income of a person represents a subsidy granted to him by the federal government for implementation of any orders of the federal government in this behalf with forgone tax amount of Rs17.8 billion.

According to the tax expenditure report, total federal taxes expenditure based on the data relating to FY2021-22 is estimated at Rs2,239.63 billion with a tax-wise breakdown including income tax exemption standing at Rs423.89 billion (6.89 percent of total FBR tax collection, 18.93 percent of total expenditure and 0.64 percent of GDP) Sales Tax Rs1,294.04 billion (21.05 percent of the total FBR tax collection, 57.78 percent of total expenditure and 1.94 percent of GDP) and Customs Duty of Rs521.70 billion (8.49 percent of total FBR tax collection, 23.29 percent of total expenditure and 0.78 percent of GDP).

Income tax expenditures are classified into various types of measures, i.e., allowances, credits, exemptions, reduced rates, exclusion, etc. Overall income tax expenditure accounted for 18.93 percent of the total expenditure in FY2021-22.

The major chunk of income tax exemptions pertains to incomes exempt from tax given in Part I of Second Schedule (54.82 percent), followed by specific provisions (16.24 percent) and tax credits (12.30 percent). A substantial jump has been noted in tax expenditure on account of the reduction of rates mainly because of the non-availability of data on certain clauses during PFY and addition of some clauses through Finance Act, 2021 related to the reduction in rates on the import of sugar.

Sales tax expenditure has been calculated for sales tax at the local and import stages. The tax expenditure in sales tax increased by 74.93 percent as compared to that in the preceding year. The overall tax expenditure is 57.78 percent of the total expenditure in FY2021-22. The major share (48.91 percent) of sales tax expenditure goes to exemptions given on POL Products through various SROs followed by an exemption under the Sixth Schedule on (Imports) (19.90 percent) of sales tax expenditure, zero rating under Fifth Schedule (10.77 percent), local supplies under Sixth Schedule (10.29 percent), reduced rates under Eighth Schedule (10.04 percent) and sales tax on cellular mobile phones under Ninth Schedule (0.08 percent).

The customs duty concessions are in the form of a reduced rate, zero rates, and exemptions to specific sectors/items, which are broadly scattered among items such as plants, machinery and equipment, chemicals, parts, and renewable energy sources equipment. The largest portion of customs duty expenditure (37 percent) is on account of General Concessions for the automobile sector, E&Ps, CPEC, etc.