Govt to give up powers for granting tax exemptions

The government has given firm commitment to the International Monetary Fund (IMF) that it will introduce legislation to permanently eliminate the tax exemptions and concessions through the Statutory Regulatory Orders (SROs).

An official source said that the Ministry of Finance and Federal Board of Revenue were working on the draft legislation, which was likely to be introduced in the Parliament by March end. The government has already announced at the start of current fiscal year that all SRO exemption will be gradually withdrawn within next three years.

It is estimated that the tax exemptions through SROs cause a loss over Rs 450 billion per annum to the national exchequer. The concessions are mainly granted to highly influential industrials and companies.

The elimination of tax exemptions are expected to increase tax revenue by one and half percent of GDP. This will also help in implementing General Sales Tax (GST) in fully integrated, value added tax (VAT) mode. The government is advised by the International Financial Institutions (IFIs) to end tax exemptions as it will help in enhancing revenue generation.

The source said that to increase tax compliance FBR is working on a number of measures including introducing electronic volume tracking of production in the manufacturing sector that will improve sales tax collection. FBR is also working on steps to temporarily close businesses, attach properties of tax offenders; and attach bank accounts of tax defaulters to withdraw the assessed tax liability directly from their accounts.

Major tax exemptions include plant, machinery, equipment, apparatus and items including capital goods, zero-rating of specific goods. The partial exemption on sugar causes a loss of over Rs 12 billion per annum. Most of the income tax exemptions are related to independent power producer (IPPs) which is estimated over Rs 50 billion. The education institutions including universities also remain outside the tax net.