The government publishes a report every year. It is called the Tax Expenditure Report. It lists every tax exemption, every concession, every reduced rate and every credit granted by the state. It adds up how much revenue is not collected as a result.
In a normal country, these provisions would be targeted incentives for specific policy goals. In Pakistan, they are something else. They are used to ‘subsidise’ the rich and powerful. They are the institutional infrastructure of rent-seeking. They are extractive tax policies dressed up as development.
The FBR has published this report for six consecutive years. The first covered fiscal year 2019-20. The 2025 report is the sixth. The IMF has provided technical assistance to the FBR’s Directorate General of Revenue Analysis. It has also used these reports to demand specific policy actions under the current $7 billion Extended Fund Facility. But do not be fooled. The report is not an IMF document. It is Pakistani. That is what makes the numbers so painful.
What does the report reveal? A parallel fiscal universe. The state hands back hundreds of billions of rupees every year to organised interests with minimal oversight. Parliament does not vote on most of these giveaways. The public does not know who is receiving them.
Here are the numbers for FY2023-24. Total federal tax expenditures reached Rs2,434.73 billion. That is $8.7 billion at Rs280 per dollar. It is 26.18 per cent of what the FBR actually collected. It is 2.32 per cent of GDP. Sales tax gives away the most: Rs1,237.11 billion ($4.42 billion). Customs duty follows: Rs652.39 billion ($2.33 billion). Income tax adds another Rs545.23 billion ($1.95 billion).
To understand how large these numbers are, consider this: they exceed the entire federal development budget. They are larger than Pakistan’s annual spending on health and education combined. And here is the killer: in a single year, Pakistan gives away more in tax exemptions than it borrows from the IMF over three years.
Now ask the obvious question. Who gets this money?
The report will not tell you. It lists beneficiaries by sector, not by firm. The fertiliser and agriculture sector received Rs457.93 billion in sales tax expenditure. The report does not say who exactly. The financial sector received Rs82.05 billion in income tax expenditure. The report does not say to whom. Collective investment schemes received Rs75.55 billion. The report does not say to whom.
Do not be told this is a technical limitation. The FBR has the data. Every company files tax returns. Every exemption claimed is recorded against a specific National Tax Number. The FBR could publish an anonymised table of tax expenditures by firm. It chooses not to. Opacity is a feature that protects the powerful.
The report also documents a vast system of personal income tax exemptions for politically connected and powerful groups. These are not small sums. They are targeted benefits.
The single largest personal income tax exemption is for pensions. The pension sector receives Rs157.25 billion in income tax expenditure. Social security adds another Rs151.95 billion. Together, that is Rs309.2 billion ($1.10 billion) in foregone revenue from pensions and social security benefits alone. It lumps pensions together, concealing the true fiscal cost of a specific segment’s privileged status.
The cumulative effect is a tax system that exempts the powerful while taxing the weak. The salaried worker pays withholding tax on every rupee earned, while others pay nothing on their pension. Most tax expenditures are granted through statutory regulatory orders, or SROs – executive notifications issued without parliamentary vote. The legal framework grants the government authority to modify tax liabilities unilaterally.
Thousands of SROs have been issued since the 1990s. Some are broad sectoral exemptions. Others are written so narrowly that they effectively name specific firms. The SRO system operates in near-total darkness. No legislator votes. No committee reviews. No public record explains who requested a concession or why it was granted. The Tax Expenditure Report 2025 does not name a single SRO.
The IMF has used the report to extract specific commitments under the current programme. The government has agreed to introduce a 5.0 per cent Federal Excise Duty on fertilisers, directly targeting the largest single sales tax expenditure. It has agreed to remove items from the preferential Eighth Schedule. It has agreed to eliminate exemptions for Special Economic Zones by 2035. The fertiliser industry has successfully resisted all attempts to phase out its subsidies since the 1990s. Whether this time will be different depends entirely on whether the IMF enforces its conditions with the rigidity it has rarely shown in Pakistan.
The Tax Expenditure Report 2025 provides sectoral totals that were unavailable a decade ago. But it is not transparency. Transparency would require beneficiary-level disclosure, separation of military and civilian pension benefits, evaluation of whether exemptions achieve their stated objectives, and parliamentary oversight of every SRO. The report provides none of these.
This is how the system works. Tax the people. Exempt the powerful. Organised interests lobby for exemptions. The executive grants them through SROs. Parliament never votes. The FBR publishes sectoral totals that obscure more than they reveal. The IMF demands reform. The government commits. The exemptions remain. The people bear the burden. The cycle repeats. The Tax Expenditure Report 2025 shows us what we lose: $8.7 billion annually. It does not show us who gains. But we know.
The writer is former head of Citigroup’s emerging markets investments and author of ‘The Gathering Storm’.
