ISLAMABAD: The Tax Expenditure Report 2020 released by the Federal Board of Revenue (FBR) on Wednesday states that tax expenditure from federal taxes in FY20 amounted to an estimated Rs1,150 billion.
“Tax expenditure in sales tax amounted highest at Rs518.8 billion (45 percent of the total), while in income tax it amounted to Rs378 billion (33 per cent) and in customs (it amounted) to Rs253.1 billion (22 per cent),” said the report.
According to the report, taking into account Rs3,828 billion tax collection by FBR in FY20, tax expenditure to total collection ratio comes to about 30 per cent, and tax expenditure to GDP ratio stands at around 3 per cent.
“Tax expenditures are special tax provisions in the tax law that are exceptions to the normal structure of the tax system. They represent revenue the government forgoes from these tax provisions, to achieve various social and economic objectives by favoring a particular industry, activity, or class of persons,” the report further stated.
Out of the Rs378 billion income tax expenditure, major expenditures included, Rs30 billion on exemption or concessions for new business initiatives, Rs 2.4 billion for people giving charitable donations and Rs 65 billion for the corporate manufacturing sector. The tax department has also granted tax credits to non-profit organisations, trusts, welfare institutions amounting to Rs21 billion.
Out of the Rs518 billion sales tax expenditure in FY20, major expenditures included Rs13 billion for zero rating under 5th Schedule to Sales Tax Act 1990, Rs255 billion for exemptions on imports, Rs54 billion for local supplies and Rs23 billion on cellular mobile phones under the 9th Schedule.
Out of the Rs253 billion custom related tax expenditures, major expenditures included Rs2.1 billion for charitable institutions and hospitals, Rs2.6 billion for charitable non-profit making hospitals or institutions, Rs26 billion for general exemption on import from China under Pak-China Free Trade Agreement and Rs14 billion for stationary, electrical capacitors, pesticides, distilled fatty acids, fans, transformers and electric motors manufacturers under general concessions for automobile sector and exploration and production companies.