In a startling revelation from Pakistan Economic Survey 2023–24, the federal government has granted a staggering Rs. 5,840 billion (approximately $21 billion USD) in tax exemptions to various sectors during the current fiscal year. This figure is not only record-breaking in scale but also exceeds the country’s total external debt repayment requirement of nearly $17 billion for the same period. The report has sparked widespread debate over the sustainability of Pakistan’s fiscal policies and the country’s chronic revenue shortfalls.
The Breakdown of Tax Exemptions
According to the Economic Survey, the exemptions were provided in the form of income tax, sales tax, and customs duty relief to multiple industries including agriculture, IT, energy, education, and manufacturing. Key beneficiaries include:
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Agricultural Sector: Customs duty exemptions on the import of fertilizers, pesticides, seeds, and agricultural machinery.
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Information Technology: Full income tax exemption for freelancers and IT exporters, and relaxation on repatriation of earnings.
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Renewable Energy: Solar equipment and machinery imports have been made duty-free to encourage green energy investments.
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Automobile Industry: Concessions for hybrid and electric vehicle imports and parts manufacturing.
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Consumer Goods: Reduced GST on essential items such as wheat, flour, sugar, and edible oils.
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Education Sector: Allocation of Rs. 10 billion for the distribution of 100,000 laptops and Rs. 38 billion for scholarships and student loans.
While these exemptions may be aimed at boosting economic activity and supporting vulnerable segments of society, their cumulative financial impact is staggering.
Revenue vs. Welfare: A Double-Edged Sword
Tax exemptions are a common policy tool used by governments to stimulate growth, attract investment, or provide relief to certain groups. However, in Pakistan’s case, they have come under intense scrutiny due to the country’s fragile fiscal position and dependence on external financing. The exemptions now account for a substantial portion of the country’s GDP, and yet the tax-to-GDP ratio remains alarmingly low — hovering around 9%, one of the lowest in South Asia.
Analysts argue that the scale of these tax concessions reflects poor tax governance and a failure to expand the revenue base. While large businesses and influential sectors continue to benefit from these reliefs, the burden of taxation falls disproportionately on the salaried class and small businesses through indirect taxes like GST and petroleum levies.
Economic Implications
The economic implications of such large-scale tax exemptions are profound:
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Budget Deficit: With revenue collections undermined by exemptions, the government has limited fiscal space to fund development projects or provide basic services.
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Public Debt: Reduced tax inflows increase reliance on domestic and foreign borrowing, exacerbating the country’s already high public debt.
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Inflationary Pressures: A growing fiscal deficit often leads to increased money printing, further fueling inflation, which has been hovering in double digits throughout the year.
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Donor Concerns: International financial institutions like the IMF and World Bank have long urged Pakistan to expand its tax base and cut unnecessary subsidies. Continuation of such policies may jeopardize future loan programs or disbursements.
Political and Social Context
These tax exemptions also reflect a political calculus. In an election year or during periods of political instability, governments often resort to populist measures to gain public favor. Subsidizing food items, offering tax relief to traders, and incentivizing key industries might help retain political capital, but they undermine structural reforms necessary for long-term economic stability.
Furthermore, the poor and lower-middle class — whom these policies aim to support — often see little real benefit. Subsidies and exemptions meant for them are frequently misdirected or captured by middlemen, while their incomes remain stagnant amidst rising costs of living.
The Road Ahead: Reforms Urgently Needed
The Economic Survey’s findings should serve as a wake-up call for policymakers. While some tax exemptions may be justified on developmental or social grounds, the scale and lack of transparency in their implementation are troubling. Experts suggest several steps to mitigate the issue:
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Tax Base Expansion: Bringing undocumented sectors, such as real estate and retail, into the tax net.
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Rationalization of Exemptions: Reviewing and phasing out non-targeted and regressive exemptions.
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Improved Tax Administration: Strengthening the Federal Board of Revenue (FBR) through digitization and institutional reform.
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Fiscal Discipline: Ensuring that tax policy supports a sustainable budget and reduces dependence on external aid.
Conclusion
Pakistan’s Rs. 5,840 billion in tax exemptions during the 2023–24 fiscal year underscore the urgent need for comprehensive tax reform. While such concessions may bring short-term political or economic benefits, they are unsustainable in the long run and risk further destabilizing the country’s already fragile economy. Achieving fiscal balance requires difficult decisions — ones that ensure equity, efficiency, and long-term resilience.
Reference: رواں مالی سال حکومت نے مختلف شعبوں کو 5840 ارب روپے ٹیکس معاف کیا:اکنامک سروے
