The cost of tax exemptions of sales tax, income tax and customs duty has been increased by Rs 125.229 billion in 2017-18 when compared with 2016-17. Total cost of exemptions granted on imports from China caused accumulative revenue loss of Rs 31.822 billion during the period under review. The cost of exemption of customs duty granted to Chinese imports under China-Pakistan Economic Corridor (CPEC) caused a revenue loss of Rs 397 million in 2017-18. The customs duty exemption on the imports from China under SRO No 659(I)/2007 caused major revenue loss of Rs 31.415 billion in 2017-18 against Rs 31.618 billion in 2016-17.
The cost of sales tax exemptions totalled at Rs 281.05 billion in 2017-18 against Rs 250.06 billion in 2016-17; income tax, Rs 61.78 billion against Rs 14.005 billion and cost of customs duty exemptions was Rs 198.15 billion against Rs 151.686 in 2016-17.
In case of direct taxes, cost of income tax exemptions has been increased by Rs 47.775 billion in 2017-18 when compared with previous year. The review of exemptions granted on the income tax side revealed that two major exemptions ie tax credit for balancing, modernisation and replacement of plant and machinery under section 65B of the Income Tax Ordinance and exemption to IPPs caused accumulative revenue loss of Rs 52.643 billion during 2017-18.
The Economic Survey has mentioned a revenue loss of Rs 17.929 billion on account of exempt business income granted to independent power producers (IPPs during 2017-18. In 2016-17, the revenue loss on account of the IPPs stood at Rs 50.200 billion against Rs 52.030 billion in 2015-16. Similarly, the survey has not mentioned any revenue loss from capital gains. The revenue loss on account of capital gains was decreased from Rs 2.5 billion in 2015-16 to Rs 1.7 billion in 2016-17.
Major revenue loss has been suffered due to local supplies exemption under (Exemption Schedule) Sixth Schedule of the Sales Tax Act, imports exempted under Sixth Schedule of the Sales Tax Act, local supplies under Fifth Schedule of the Sales Tax Act, sales tax exemptions, concessions to five major export oriented sectors, reduction in corporate tax rate, exemption of customs duty for OEMs of automotive sector and customs duty concessions and tariff concessions to Chinese imports during 2017-18.
The Economic Survey disclosed that the FBR has suffered massive revenue loss of Rs 172.1 billion due to sales tax exemptions available under Sixth Schedule (Exemption Schedule) of the Sales Tax Act. Last year, the cost of exemptions under Sixth Schedule amounted to Rs 156.9 billion. Thereby, the loss on account of (Exemption Schedule) of the Sales Tax Act has been increased by Rs 15.2 billion in 2017-18.
In 2017-18, a huge revenue loss of Rs 172.1 billion under Sixth Schedule revealed that most of the sales tax exemptions are available under a single schedule of Sales Tax Act. The revenue loss due to sales tax exemptions available at the import stage under Sixth Schedule of the Sales Tax Act caused a loss of Rs 75.9 billion in 2017-18 against Rs 67.6 billion in 2016-17. The revenue loss on account of sales tax exemptions available on local supplies under Sixth Schedule of the Sales Tax Act caused a loss of Rs 96.2 billion against Rs 89.3 billion.
On the other hand, the revenue loss on account of rationalisation of corporate tax rate in 2017-18 has not been mentioned in the survey. In 2016-17, the rationalisation of corporate tax rate caused a huge revenue loss of Rs 12 billion during this period.
The revenue loss from SRO No 1125 has been increased from Rs 50.4 billion in 2016-17 to Rs 61.3 billion in 2017-18, reflecting an increase of Rs 10.9 billion.
Sales tax concessions available to the five leading export oriented sectors, ie, textile, leather, carpets, surgical and sports goods caused a revenue loss of Rs 61.3 billion in 2017-18 against Rs 50.4 billion in 2016-17.
The total revenue loss from Fifth Schedule of the Sales Tax Act 1990 amounted to Rs 28.35 billion during the period under review against Rs 26.36 billion in 2016-17, reflecting an increase of Rs 1.99 billion. The imports under Fifth Schedule of the Sales Tax Act 1990 caused a revenue loss of Rs 0.75 billion during 2017-18 whereas the local supplies under Fifth Schedule of the Sales Tax Act 1990 caused revenue loss of Rs 27.6 billion in 2017-18.
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 sales tax exemptions has been worked out at Rs 281.05 billion for the fiscal year 2017-18. The followings are the main exemptions in sales tax and their cost of exemptions during 2017-18: SRO No 1125(I)/2011 relating to concessionary rate of sales tax on raw materials, intermediary inputs and finished goods relating to textiles, carpets, leather, sports and surgical sectors, caused huge revenue loss of Rs 61.3 billion to the national exchequer. Imports under Fifth Schedule, local supplies under Fifth Schedule, imports under Sixth Schedule caused revenue loss and imports under Eighth Schedule of the Sales Tax Act 1990 caused huge revenue loss of Rs 19.3 billion to the national exchequer.
The cost of income tax exemptions was considerably enhanced from Rs 14.005 billion during 2016-17 to Rs 61.777 billion in 2017-18. The tax credit availed for balancing, modernisation and replacement of plant and machinery under section 65B of the Income Tax Ordinance caused a revenue loss of Rs 34.714 billion; tax credit for establishing new industry under section 65D of the Ordinance resulted in a revenue loss of Rs 3.321 billion; credit under section 64A of the Income Tax Ordinance, 2001 regarding interest on the house building caused a revenue loss of Rs 1.40 billion; credit under section 64AB deductible allowance on educational expenses caused a revenue loss of Rs 0.057 billion.
The revenue loss due to exemption to export of IT services caused revenue loss of Rs 0.046 billion for 2017-18.
The customs duty concessions include imports from China. Customs exemptions are given on raw materials and components, plant, machinery and equipment, imported by the industries particularly export oriented sectors. Some of these exemptions are due to international bilateral/multilateral agreements with out trading partners like China, Malaysia and SARRC countries.
Tax expenditure in respect of customs duty has been estimated at Rs 198.151 billion for 2017-18 against Rs 151.686 billion, reflecting an increase of Rs 46.465 billion. The concessions under Fifth Schedule of the Customs Act 1969 caused a revenue loss of Rs 92.408 billion in 2017-18 as compared to Rs 62.901 billion in 2016-17, reflecting an increase of Rs 29.507 billion.
The Economic Survey revealed that the SRO No 809(I)/2006 was rescinded in the Budget 2017-18. However, the remaining concessions were shifted to Part-IVI of 5th Schedule to the Customs Act.
Out of total cost of exemption of customs duty of Rs 198.151 billion for 2017-18, concessions under the Fifth Schedule of the Customs Act 1969 cost Rs 92.408 billion in 2017-18 as compared to Rs 30.640 billion in 2016-17, reflecting an increase of Rs 61.768 billion.
The concession of customs duty on goods imported from SAARC and ECO countries caused a revenue loss to the tune of Rs 274 million in 2017-18 against Rs 73 million in 2016-17. The customs duty exemption on the imports from China under SRO No 659(I)/2007 caused a revenue loss of Rs 31.415 billion in 2017-18 against Rs 31.618 billion in 2016-17 as per Economic Survey.
The customs duty exemption on the imports from Iran under Pak-Iran PTA caused a loss of zero rupees in 2017-18 as compared to Rs 4 million in 2016-17. The customs duty exemption on the imports under the SAFTA agreement caused a revenue loss of Rs 1.329 billion in 2017-18. The customs duty exemption on the imports from Malaysia caused a revenue loss of Rs 2.674 billion in 2017-18 against Rs 1.983 billion in 2016-17.
Exemption of duty on the imports made from Sri Lanka caused a revenue loss of Rs 2.802 billion in 2017-1 as compared to revenue loss of Rs 2.538 billion in 2016-17. Exemption of duty on imports from Mauritius caused a loss of Rs 15 million in 2017-18 against Rs 27 million in 2016-17.
The conditional exemption of customs duty on import of raw materials and components, etc, for manufacture of different sectors under SRO No 565(I)/2006 resulted in revenue loss of Rs 2.897 billion in 2017-18 as compared to Rs 2.276 billion during the corresponding period of the last fiscal year. The revenue loss has been increased by Rs 0.621 billion.
Similarly, exemption of customs duty and sales tax on the import of machinery, equipment and vehicles by the exploration and production (E&P) companies (SRO No 678(I)/2004) caused a loss of Rs 4.640 billion against Rs 6.282 billion in the same period of the last fiscal year.
The exemption of customs duty for vendors of automotive sector caused a revenue loss of Rs 18.899 billion in 2017-18 as compared to Rs 17.668 billion in 2016-17, showing an increase of Rs 1.231 billion. The exemption of customs duty for OEMs of automotive sector caused a revenue loss of Rs 35.030 billion in 2017-18 as compared to Rs 21.827 billion in 2016-17, reflecting an increase of Rs 13.023 billion. The exemption of customs duty on the import of cotton was Rs 1.496 billion in 2017-18.