ISLAMABAD: Tax exemptions granted by Pakistan’s Federal Board of Revenue (FBR) surged to a record Rs5.84 trillion in the fiscal year 2024-25, showing a sharp 51 percent increase compared to the previous year, according to the Economic Survey 2024-25.
This dramatic rise in tax waivers comes amid ongoing challenges for the FBR to meet revenue targets, marking the second consecutive year of soaring exemptions. In the prior fiscal year, exemptions had already jumped 73.3 percent.
Despite the government’s commitment under the International Monetary Fund (IMF) program to reduce exemptions gradually, the costs have climbed for the seventh straight year.
Major Drivers of Tax Exemptions
A significant chunk of these tax concessions, amounting to Rs1.796 trillion, came from waivers on domestically supplied and imported petroleum, oil, and lubricant (POL) products.
While this exemption creates a large fiscal number, the federal government compensates through the petroleum development levy (PDL), which provinces do not share in, resulting in minimal net cost for the federal government but reduced provincial revenue.
Sales tax exemptions also jumped by nearly 49 percent to Rs4.25 trillion, primarily due to exemptions on POL imports and local supplies and specific exemptions under the Sales Tax Act.
Zero-rated exemptions for export-oriented sectors increased dramatically by 232 percent to Rs683 billion, as the government expanded relief to promote exports.
Income and Customs Tax Exemptions Soar
Income tax exemptions grew by 68 percent to Rs800.8 billion, largely because of full exemptions on income under specific tax schedules.
Tax credits for businesses also skyrocketed, increasing more than fourfold to over Rs101 billion.
Customs exemptions climbed 44.6 percent to nearly Rs786 billion, adding further pressure on overall tax revenues.
The rising exemption trend continues to worry the IMF and fiscal watchdogs, with upcoming budgets expected to address cuts to these concessions to meet ambitious revenue goals.
