Pakistan grants PKR 5,840 billion tax exemptions to affluent classes in FY25

Despite International Monetary Fund (IMF) recommendations to phase out tax exemptions, Pakistan granted a record PKR 5,840.2 billion in tax waivers during fiscal year 2024-25 (FY25), up from PKR 3,880 billion the previous year, according to the Economic Survey FY25.

The surge in tax expenditures — government revenue foregone due to exemptions, concessions, and reduced rates — significantly benefited higher-income segments, raising concerns about equity in the tax system.

Income tax exemptions alone rose to PKR 800 billion in FY25, a sharp increase from PKR 476 billion last year. This figure includes PKR 122 billion under Part VII of Chapter exemptions, PKR 101 billion in tax credits, PKR 443.3 billion in general income tax exemptions, PKR 45 billion in reduced tax rates, and PKR 19 billion in reductions to tax liability.

Sales tax exemptions saw the largest increase, totaling PKR 4,253.4 billion in FY25, compared to PKR 2,858 billion the year prior. These include PKR 683 billion in zero-rated supplies under the Fifth Schedule, PKR 613 billion for local supplies under the Sixth Schedule, PKR 372 billion for imports under the same schedule, and PKR 617 billion under reduced rates in the Eighth Schedule.

Additional exemptions include PKR 87.95 billion on mobile phones, PKR 48 billion in additional taxes, and PKR 1,496 billion on petroleum products for local supplies and PKR 299 billion for imports, both under SRO 321/2022. Smaller exemptions include PKR 4.7 billion via SROs on local supplies and PKR 29 billion across various zero-rated sections.

In terms of customs duties, exemptions reached PKR 785.8 billion. This figure includes PKR 33.4 billion under Chapter 99, PKR 60.97 billion under Free and Preferential Trade Agreements (FTA/PTA), PKR 379.7 billion under the Fifth Schedule, PKR 133.2 billion in general concessions for sectors such as automobiles, energy, and CPEC-related projects, and PKR 178 billion for exports.

The record tax expenditure comes at a time when Pakistan is attempting to expand its tax base and reduce its fiscal deficit under IMF-supported reforms. Analysts say the generous exemptions, particularly to already advantaged groups, undermine those goals and place a disproportionate burden on the salaried and documented sectors of the economy.