Exemptions cost Pakistan Rs394.5b in outgoing fiscal year Tax exemptions thorn in govt’s rosy image
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OBSERVER REPORT ISLAMABAD—Tax exemptions continued to be a thorn in the government’s rosy image as the latest figures revealed that Pakistan sustained a loss of Rs394.5 billion in the outgoing fiscal year. The loss was only Rs17.5 billion or 4.45% less than the previous year despite the fact that the government withdrew Rs124 billion worth of exemptions in the previous budget.
The development once again put a question mark over the authenticity of the government’s claims of withdrawing tax exemptions in a phased manner under the International Monetary Fund (IMF) programme. The details of tax exemptions that were made public on Thursday in the Economic Survey of Pakistan for fiscal year 2015-16 are contrary to expectations of significant reduction in losses after the government began the process of withdrawing Statutory Regulatory Orders (SROs) in June 2014.
In fiscal year 2013-14, the federal government stated that total tax exemptions amounted to Rs477 billion. In the last two budgets, the government withdrew a combined total of Rs227 billion worth of exemptions, which should have resulted in about 50% reduction in these losses. Under an agreement with the IMF, the government undertook a comprehensive study in 2013 to know the exact amount of these losses. However, the figures published in the latest Economic Survey showed that in fiscal year 2015-16, the country sustained a loss of Rs394.5 billion.
Finance Minister Ishaq Dar has already announced that the government would withdraw the remaining SROs in the new budget except those that are socially-sensitive. Tax exemptions are an especially thorny issue in Pakistan where allegations of corruption in the Federal Board of Revenue (FBR) coupled with a narrow tax base have resulted in the country having one of the lowest tax-to-GDP ratios in the region. The ratio stood at 8.4% of GDP during the first nine months of the outgoing fiscal year.