Tax exemptions in Pakistan exceed Rs11 trillion in five years

ISLAMABAD:The National Assembly was informed that the government had provided tax exemptions and concessions worth more than Rs11,000 billion between fiscal years 2020-21 and 2024-25, according to information provided by the Ministry of Finance.

According to the ministry, tax exemptions amounted to Rs1,482 billion in fiscal year 2020-21, rising to Rs2,239 billion in 2021-22.

The value of tax exemptions and concessions reached Rs2,540 billion in fiscal year 2022-23 before declining to Rs2,352 billion in 2023-24. The figure for 2024-25 was also reported at Rs2,352 billion.

Meanwhile, Jamiat Ulema-e-Islam (JUI) MNA Alia Kamran questioned the public benefit of these tax exemptions, asking whether ordinary citizens had benefited from the concessions.

Kamran also sought clarification from the government regarding the prime minister’s statement that 2027 would be the last year in which Pakistan would borrow from the International Monetary Fund (IMF).

In response to the question, the parliamentary secretary said he could not provide a definitive assurance but expressed hope that 2027 would be the final year of Pakistan’s borrowing from the International Monetary Fund (IMF).

Separately, the government is considering introducing a mini-budget to implement tax measures and levies under the proposed automotive policy, according to sources.

Under the proposed policy, electric vehicles (EVs) are expected to receive sales tax relief worth Rs85 billion.

The IMF has reportedly called for an increase in the sales tax on EVs from 1% to 18%. However, official government documents indicate that the 1% sales tax would be retained for EVs valued at up to $75,000, resulting in the estimated Rs85 billion tax relief.

Sources said the government plans to recover the Rs85 billion revenue shortfall through alternative measures. A finance bill may be introduced to impose a Federal Excise Duty (FED) and an Automotive Development Levy to generate additional revenue.

Under the proposed auto policy, a 2% levy will apply to vehicles with engine capacities ranging from 1,001cc to 2,000cc, while vehicles with engine capacities of 2,001cc and above will face a 10% levy.

Official documents state that the Automotive Development Levy will apply to all locally assembled and imported petrol and internal combustion engine (ICE) vehicles. Additionally, the government may impose a 10% Federal Excise Duty on EVs priced above Rs20 million, along with a new carbon levy on petrol and ICE vehicles.

The government expects to generate Rs25 billion through the carbon levy on petrol, diesel and ICE vehicles, while general levies on these vehicles are projected to yield Rs37 billion. A further Rs45 billion is expected to be collected through levies on commercial buses and trucks under the proposed policy.