Pakistan’s Tax Expenditures Hit Rs5.8 Trillion in 2025
Exceeding External Debt Payments
In a startling revelation, the Government of Pakistan disclosed that tax exemptions have ballooned to a record-breaking Rs5.84 trillion in the fiscal year 2024–25. This represents a 51% surge—nearly Rs2 trillion more than last year—despite repeated claims of cutting down on tax concessions.
In dollar terms, this tax loss equals $21 billion, surpassing the $17 billion Pakistan owes in external debt repayments to China, Saudi Arabia, the UAE, and Kuwait this year.
The figures come from the Economic Survey of Pakistan 2025, unveiled by Finance Minister Muhammad Aurangzeb, raising critical questions about the effectiveness of fiscal reforms and the credibility of the government’s revenue data.
Breakdown of the Rs5.8 Trillion Tax Exemptions
1. Sales Tax Exemptions: Rs4.3 Trillion
Sales tax breaks made up three-quarters of the total tax expenditure. These include:
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Petroleum Products:
Rs1.8 trillion in sales tax forgone due to zero-rating, though the government recovered some revenue through a Rs78/litre petroleum levy. -
Fifth Schedule Exemptions (Zero-Rated Items):
Rs683 billion—a 232% increase over last year. The IMF is pressuring Pakistan to eliminate these. -
Sixth Schedule (Basic Goods):
Rs986 billion, including Rs613 billion from local supplies and Rs373 billion from imports. -
Eighth Schedule (Reduced Rates):
Rs618 billion—a 75% jump. IMF wants these rates brought up to standard. -
Mobile Phones:
Rs88 billion lost—up 166% from last year. -
Additional Sales Tax Exemptions:
Rs49 billion.
2. Income Tax Exemptions: Rs801 Billion
Despite targeting the salaried class, income tax exemptions rose by 68%:
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Government Income:
Rs123 billion in exemptions—up 112%. -
Tax Credits:
Rs101 billion, an increase of Rs75 billion. -
Allowances and Specific Provisions:
Rs16.5 billion and Rs52 billion, respectively. -
Second Schedule Exemptions:
Rs444 billion—a 51% rise.
3. Customs Duty Exemptions: Rs786 Billion
Up by 45%, major exemptions included:
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Fifth Schedule (Full Duty Waiver):
Rs380 billion. -
CPEC, Auto, and Oil & Gas Sectors:
Rs133 billion. -
Export-Related Imports:
Rs179 billion. -
Free Trade Agreements:
Rs61 billion.
Data Accuracy in Question
A senior FBR official admitted that the Rs5.8 trillion figure might be inflated due to double-counting and inclusion of petroleum-related losses. The number is expected to be revised online.
Still, the magnitude of the reported exemptions raises doubts about previous estimates and suggests possible hidden tax breaks or accounting inconsistencies.
Pakistan to Unveil Rs17.6 Trillion Federal Budget for 2025–26
Despite limited economic growth, tax expenditure continues to rise. This inconsistency implies that earlier data may have been underreported or that exemptions were quietly reintroduced.
IMF Pressure and Policy Implications
The International Monetary Fund (IMF) has consistently urged Pakistan to withdraw tax exemptions to broaden the tax base and stabilize public finances. With the rise in exemptions this year, Pakistan may find it harder to meet IMF benchmarks and secure future funding.
The petroleum levy workaround—exempting sales tax but charging a fixed levy—may offer short-term relief but complicates tax accounting and transparency.
Conclusion: A Call for Fiscal Clarity
The record-high tax expenditures highlight a structural issue in Pakistan’s tax policy—where short-term fixes and opaque exemptions undercut efforts for long-term reform. With Rs5.8 trillion in lost revenue, the country continues to subsidize sectors that could be contributing their fair share.
As Pakistan negotiates with lenders and manages a delicate economic recovery, eliminating unjustified tax breaks and improving transparency in fiscal reporting are not just options—they are imperatives.
