ISLAMABAD: Despite remaining under the tight noose of IMF scrutiny, whereby elimination of tax exemption is one of the core objectives of the $7 billion Extended Fund Facility, Pakistan’s total tax exemptions provided to influential sectors have cost the government of Rs2.532 trillion in the outgoing fiscal year 2025-26.
The Economic Survey for 2025-26 showed that the sales tax expenditure remained the highest during 2025-26 as compared to revenue loss on account of income tax and customs duty in totality.
All kinds of sales tax exemptions/concessions caused revenue loss of Rs1.273 trillion; followed by income tax loss of Rs0.579 trillion and Customs Duty revenue loss of Rs0.499 trillion.
The survey disclosed that the fixed sales tax regime on cellular mobile-phones caused a revenue loss of zero rupees in 2025-26 as compared to Rs87.95 billion in 2024-25.
The Federal Board of Revenue (FBR) has suffered a revenue loss of Rs261 billion on account of sales tax exemption on imports during 2025-26 as compared to Rs372 billion during 2024-25, reflecting a decrease of Rs111 billion.
Sales tax exemption on local supplies caused a revenue loss of Rs305 billion in 2025-26 as compared to Rs613 billion in 2024-25, reflecting a decrease of Rs308 billion.
The FBR has suffered a massive revenue loss of Rs566.95 billion in 2025-26 as compared to Rs985.594 billion in 2024-25 due to sales tax exemptions available under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act. The loss on account of sales tax exemption (import and domestic stage) has decreased by nearly Rs565 billion.
The FBR has suffered a loss of Rs635.841 billion due to sales tax exemptions available under the Eighth Schedule (Conditional Exemption/reduced rates) of the Sales Tax Act, 1990, during the period of 2025-26 against Rs617.347 billion in 2024-25. The revenue loss from conditional exemptions has decreased by Rs635.22 billion.
The total revenue loss from the zero-rating facility granted to various sectors under the Fifth Schedule of the Sales Tax Act, 1990, amounted to Rs8.774 billion during the period under review against Rs6.83429 billion in 2024-25.
The FBR has not specified any revenue loss to the exemptions within the federal excise regime, reflecting no loss occurred on this account.
The cost of income tax exemptions amounted to Rs579.7 billion against Rs800.8 billion, showing a decrease of Rs221.1 billion and the cost of customs duty exemptions was Rs499.14 billion in 2025-26 against Rs785.8 billion in 2024-25, reflecting a decrease of Rs286 billion.
The Economic Survey has not mentioned revenue loss on account of the exempt business income granted to independent power producers (IPPs).
Similarly, the survey has not mentioned any revenue loss from capital gains. The accumulative revenue loss on account of tax credits amounted to Rs75.940 billion in 2025-26 against Rs101 billion in 2024-25, showing a decrease of Rs26 billion.
The income tax exemption from special provisions of the Income Tax Ordinance has caused revenue loss of Rs10.9 billion during 2025-26 as compared to Rs41.1 billion in 2024-25.
The income tax exemption from total income has a revenue impact of Rs437,996 billion during the period under review.
The income tax exemption available to the deductible allowances caused revenue loss of Rs4.01 billion in 2025-26 against Rs16.4 billion in 2024-25, showing a decrease of Rs12.4 billion.
The reduction in income tax rates has revenue implications of Rs50.71 billion during 2025-26 as compared to Rs45 billion in 2024-25, showing an increase of around Rs5 billion.
The cost of income tax exemptions was Rs579.7 billion in 2025-26 against Rs800.8 billion in 2024-25.
The cost of exemptions in respect of Customs Duty has been calculated at Rs499.14 billion in 2025-26 as compared to Rs785.9 billion in 2024-25, reflecting a decrease of Rs286.76 billion.
The exemption of Customs Duty available under Chapter-99 (special classification provisions) of the Customs Act has caused a revenue loss of Rs17 billion in 2025-26 against Rs33.481 billion in 2024-25, reflecting a decrease of Rs1.383 billion.
The concessions under the Fifth Schedule of the Customs Act, 1969, caused a revenue loss of Rs205.655 billion in 2025-26 against Rs379.746 billion in 2024-25, reflecting a decrease of Rs174.091billion.
The FBR has suffered a revenue loss of zero rupees in 2025-26 against Rs61 billion in 2024-25 on account of tariff concessions and exemptions provided under Free Trade Agreements (FTAs) and the Preferential Trade Agreements (PTAs). The FBR could explain the reasoning for this revision in calculating the cost of exemptions.
