The cost of income tax exemptions during 2021-22 has decreased in overall tax expenditure as compared to 2020-21.
According to the new tax expenditure report-2023 issued by the Federal Board of Revenue (FBR), the cost of sales tax exemptions during 2021-22 has considerably increased in overall tax expenditure when compared with 2020-21.
The report said that the percentage share of different taxes in tax expenditure for 2021-22 in comparison with 2020-21 shows interesting results. A decline is observed in the share of income tax expense in overall tax expenditures, whereas the share of sales tax expenditure has increased significantly while the custom duty expenditure remains stable during 2021-22 as compared to 2020- 21.
The tax expenditure report-2023 further revealed that income tax expenditures are classified into various types of measures, i.e., allowances, credits, exemptions, reduced rates, exclusion, etc. Overall income tax expenditure accounted for 18.93 percent of the total expenditure in 2021-22.
Income tax-related tax expenditures are higher by 1.77 percent during 2021-22 as compared to 2020-21. A major chunk of income tax exemptions pertains to incomes exempt from tax given in Part I of the Second Schedule (54.82 percent), followed by specific provisions (16.24 percent) and tax credits (12.30 percent).
A substantial jump has been noted in tax expenditure on account of the reduction of rates mainly because of the non-availability of data on certain clauses during PFY and the addition of some clauses through the Finance Act 2021, related to a reduction in rates on the import of sugar.
The largest share of income tax expenditure was incurred in Part I of the Second Schedule of ITO, 2001. However, variation under this item was negligible for FY2021-22 as compared to the previous year.
The tax expenditure in income tax constitutes approximately 0.64 percent of GDP in 2021-22.
The income tax expenditure on account of tax credits was reduced by 20.37 percent in FY2021-22 in comparison with the previous year. The total income tax expenditure showed an increase of 1.77 percent in FY2021-22 as compared with FY2020-21. Sales Tax Estimates Sales tax expenditure has been calculated for sales tax at the local and import stage.
The report further stated that sales tax expenditure has been calculated for sales tax at the local and import stage. The tax expenditure in sales tax increased by 74.93 percent as compared to that in the preceding year. The overall tax expenditure is 57.78 percent of the total expenditure in FY2021-22.
The major share (48.91 percent) of sales tax expenditure goes to exemptions given on POL Products through various SROs followed by an exemption under the Sixth Schedule on (Imports) (19.90 percent) of sales tax expenditure, zero rating under Fifth Schedule (10.77 percent), local supplies under Sixth Schedule (10.29 percent), reduced rates under Eighth Schedule (10.04 percent) and sales tax on cellular mobile phones under Ninth Schedule (0.08 percent).
