Tax exemptions cost govt Rs5.84 trillion in 2024-25, a 50% increase

The cost of tax exemptions, concessions, zero-rating, and special tax treatments granted to various businesses, sectors, and industries has reached Rs 5,840.2 billion for the fiscal year 2024-25, marking an increase of Rs 1,961 billion compared to the previous year. This represents a 50.55% growth in tax expenditure from the Rs 3,879.2 billion recorded in 2023-24, according to the Economic Survey (2024-25). 

The survey outlined that the sales tax exemptions, particularly on petroleum products, duty concessions on imports, and overall exemptions on both imports and local supplies, were the key contributors to the increased revenue loss in 2024-25. 

Sales tax exemptions alone amounted to Rs 4,253.5 billion, followed by income tax exemptions causing a revenue loss of Rs 800.8 billion and customs duty exemptions totaling Rs 785.9 billion. The sales tax exemption on petroleum products caused a revenue loss of Rs 1,496.1 billion during the period. 

Additionally, exemptions on imports and local supplies of petroleum products contributed to a loss of Rs 985 billion, with the FBR facing significant losses from both domestic and import-related sales tax exemptions.

The Economic Survey also pointed to the cost of income tax exemptions, which rose to Rs 800.8 billion, an increase of Rs 323.9 billion compared to the previous fiscal year. 

Similarly, the exemption from customs duties resulted in a loss of Rs 785.9 billion, up by Rs 242.4 billion from 2023-24. The report also noted that exemptions granted under various schedules of the Sales Tax Act, particularly the Fifth and Sixth Schedules, caused notable losses.

Further, the fixed sales tax regime on mobile phones caused a revenue loss of Rs 87.95 billion, up significantly from Rs 33.06 billion in the previous year. Exemptions under Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) also contributed to a revenue loss of Rs 61 billion in 2024-25, an increase of Rs 17 billion compared to last year.

The Economic Survey did not specify losses from tax exemptions provided to independent power producers (IPPs) or on capital gains. However, it did indicate a notable rise in revenue losses from other areas, including export-related exemptions, which cost the government Rs 178.4 billion in 2024-25, an increase of Rs 51.17 billion from the previous year.

The report highlighted that despite these significant losses, the government’s tax base remains narrow, limiting its revenue potential. The need for a more sustainable approach to tax exemptions and the expansion of the tax base remains a critical challenge for the government as it plans future fiscal policies.