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Tax exemptions across various sectors have cost Pakistan over $21 billion this year, exceeding the $17 billion the country must repay for its maturing commercial and bilateral external debt, as reported in the latest economic survey.
Presented by Finance Minister Muhammad Aurangzeb on Monday, the Economic Survey of Pakistan 2024-25 outlines numerous economic developments and indicators for the fiscal year.
The document indicates that the expense of tax exemptions has reached a record Rs 5.8 trillion in the current fiscal year (2024-25), marking an increase of nearly Rs 2 trillion from the previous fiscal year’s Rs 3.9 trillion during the first year of the current government. According to the Express Tribune, in dollar terms, the tax losses amount to $21 billion, significantly surpassing the $17 billion Pakistan is obligated to repay this year for its maturing commercial and bilateral external debt owed to China, Saudi Arabia, the United Arab Emirates, and Kuwait.
The survey reveals that this year’s increase in tax expenditure reflects a Rs 1.96 trillion or 51 percent rise, even though the Pakistan Muslim League-Nawaz (PML-N) government eliminated several exemptions in its last budget. Despite multiple efforts to withdraw tax concessions and exemptions, the total has continued to grow each year, as noted in the economic survey. These exemptions, established over the years, are safeguarded under three separate tax laws.
The survey also reported sales tax exemptions amounting to Rs 4.3 trillion in the outgoing fiscal year, compared to Rs 2.9 trillion in the previous year, representing an almost 50 percent increase. Income tax exemptions reached Rs 801 billion in the outgoing fiscal year, a 68 percent rise from Rs 477 billion last year, according to estimates from the Federal Board of Revenue.
This increase occurred despite the government’s strategy to transfer more tax burdens onto salaried individuals while exempting other sectors such as retailers.
Customs duty exemptions rose to Rs 786 billion in this fiscal year, an increase of Rs 243 billion or 45 percent compared to Rs 543 billion from the previous year, as indicated by the survey.
The reported Rs 5.8 trillion in “tax expenditures for 2025” raises questions about the reliability of earlier reported losses, as stated in the report.
In spite of attempts by successive administrations to reduce and eliminate tax expenditures, they continue to rise consistently. The newspaper suggests that this may reflect either the introduction of many concealed tax exemptions during the fiscal year or a misrepresentation of the figures from the previous year.
According to the report, there has not been a significant increase in economic activity to account for such a drastic rise in tax exemption expenses.
