Ex­emp­tions cost Pak­istan Rs394.5b in out­go­ing fis­cal year Tax ex­emp­tions thorn in govt’s rosy im­age

Pakistan Observer - - ECONOMY WATCH -

Cur­rency Sell­ing Buy­ing

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.

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